Residential Short Sales

When you can no longer afford to make monthly mortgage payments, a short sale is an alternative to Bankruptcy or Foreclosre. A short sale is when your lender will take less than what is owed on your home. For example, you owe $250,000 on your home, the homes in your neighborhood are selling for $200,000 and the lender will accept $200,000 as a payoff. Not all lenders will accept short sales, especially if they feel they are able to foreclose and sell the property for market value. If you are considering a short sale, please make sure your lender will fogive the remainder of the debt and not pursue a deficiency judgement against you for the balance owed. With an increase in foreclosure, short sales are on the rise.

Short sales are actually a benefit to the lender because they do not have to go through the entire foreclosure process, they do not have to worry about the hassles and headaches attached to trying to have your home sold, and they can get your home off of their books. Therefore, if you are considering selling your home or you are trying to sell your home and you are unable to find a buyer willing to pay you enough to cover the entire amount you owe on your mortgage, have your Realtor contact your lender and request a short sale. A short sale is both beneficial to you as the homeowner but to the lender as well.

Be aware that there can be significant tax consequences to a short sale. If you settle your mortgage with the lender for less than the amount owed then the amount of debt forgiven by the lender may be considered regular income to the borrower.

In most cases, you must prove that you are insolvent in order to complete a short sale. Ask your CPA or financial advisor regarding the implications of this. Its also possible that you may be able to wash out any losses.

A short sale is defined as the negotiation of the transfer of ownership of real property with a mortgagee (lender), also known as the beneficiary,when the property is financially over encumbered
with monetary liens.

These types of sales are usually consummated for a ‘considerable
discount’ thus creating equity, which can be used to pay real estate
commissions as well as closing costs, delinquent property taxes, code
violation fees, child support liens, personal judgments, IRS tax liens and other monetary property liens.

The lender is more likely to accept a short sale if you already have a written offer by a pre-approved buyer in place. While the offer may be thousands less than the mortgage owed it may be just high enough for them to accept or counter, opening negotiations (which is often the biggest obstacle in a short sale).

There is currently talk of congress amending the tax code this year to provide temporary tax relief to borrowers who are forced into a short sale or otherwise providing deed in lieu of foreclosure in exchange for forgiveness of debt. Check with your tax preparer prior to executing a short sale agreement for the latest information.

» DISCLAIMER: The information contained in this article on 'Residential Short Sales' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.