What is a Short Sale?
A short sale (or short pay) is when a lender agrees to accept less than the total dollar amount of the loan(s) when the property is sold for fair market value.
Why would I want to short sale my property?
Defaulting on mortgage payments is a very stressful situation. With the change in the economy and the housing market, some people, like yourself, are finding it harder and harder to stay afloat.
The housing market bubble burst and left many otherwise responsible people with a debt that is next to impossible to service. Once a person falls behind in their payments, it is hard to catch up. Many people find themselves falling into default, or are already in default, and don’t realize that there are options available before the bank forecloses on their home. A short sale is a great alternative for both the individual and the lender.
A short sale is beneficial to you in that, once a short sale agreement has been reached with the lender they stop the foreclosure process. In most cases it will also prevent the lender from suing you for a deficiency judgment. A deficiency judgment is when a lender uses the court system to force the borrower to pay the difference between what the contract is worth and the actual amount netted from the property’s sale.
One part of the current stimulus package offers qualified individuals a "moving stipend." This amount is usually $1,500 and is often referred to as "Cash for Keys "program. We can help you determine if you qualify for this program.
What are the tax implications of a short sale?
It is necessary for you to seek advice from a Certified Public Accountant (CPA) before you proceed.
As a real estate brokerage, we am not licensed as a CPA and cannot advise you as to the tax consequences of a short sale. We can, however, inform you of a couple of issues:
The Mortgage Forgiveness Debt Relief Act, has offered some relief to principle residence home owners who choose to enter into a short sale agreement. Please contact your CPA to see if you qualify.
If the property is an investment property, the I.R.S. considers debt forgiveness as 1099 income. Of course, the tax situations of individual borrowers are different, but in general, any 1099 income generated by a short sale is usually offset by the loss the borrower takes on a bad investment. Often, critics of short sales look only at the 1099 income without considering the benefit of the offsetting deduction for the loss on the property. Again, please contact your CPA to see if you qualify.
The bottom line on taxes is: The tax year in which the borrower completes the short sale is a complicated one, and it is critical to have a CPA prepare taxes for that year.
Do I qualify for a short sale?
This is without doubt the most important question you may ask. In so many cases sales associates are listing homes as a short sale without pre-qualifying the seller. We take the time during our initial visit to gather the information which will determine if you are a candidate for the short sale process.
Why would my lender want to accept a short sale?
Many lenders are finding that their borrowers are walking away from their debt and leaving the institution with property that they truly do not wish to service. The fewer foreclosures the lending institutions have on their records the better off they are. It cost the lender on average $25k to $100k per foreclosure. A short sale is good for the lender. Even if they lose money on the transaction, they do not have to record the loan as a foreclosure. The lender can then write off the difference between what is owed on the property and what is netted from the short sale. In many cases the lenders are applying for stimulus money to offset the loss on a short sale.
How long does it take to complete a short sale?
Once there is an offer to buy your property it usually takes between 90 to 180 days to complete the transaction (Some short sales are taking in excess of one year). During this time you will still be able to occupy your home.
Will it cost me anything?
That depends. It is best that you check with your tax professional to understand the ramifications of working with the lender in a short pay situation. This cannot be stressed enough. The more you know and understand about this process the easier it will be on you. As to standard escrow seller’s fees, and all real estate commissions, they are usually paid for by the lender at the time of the close.
What services does Jade Realty offer?
- We help you complete your short sale package.
Most real estate professionals don't seem to understand the short sale process. Our experience with short sales has allowed us to put together a program which helps you put develop a rock solid short sale seller package for your lender. With this process we can determine up front if you are able to qualify for a short sale. This saves you (and us) time and heartache.
- We complete the comparative market analysis:
This is a document we create for the lender. It shows the fair market value for your property considering the decline in property values for your particular area. This is where we show the lender why it is that your property is worth less than what you owe on the loan(s).
- We list your property on the area multiple listing service (MLS).
Once this listing is active, we can initiate a series of open houses. We will then collect the offers and submit them to your lender. Your lender usually wants to know the numbers that are coming in. With our knowledgeable background, we can usually determine which offers will be accepted and which ones will not.
- We follow the entire transaction
Our expertise has shown us what to expect from the process. Which banks take the longest and which one are the most aggressive. We know when to call and when to wait for a response. We have determined a time line with certain banks and set your expectations as such. We will only contact you if we need a signature, or there is a need for you to make a decision that we are not capable of making for you.
Ok, now what do I do?
If you are ready then all you need to do is to contact our office. We will have a qualified sales associate contact you. Remember that you are not alone when you use us. Several of our team members have experienced similar situations and understand what you are going through.
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