A short sale in real estate occurs when a lender agrees to accept a discounted payoff on a loan. In most cases, the home owner owes more on the property than the home is currently worth. The seller qualifies for a short sale through a hardship.
- Why is it better to do a short sale?
A foreclosure can impact your credit far more than a short sale, especially in the long term. In fact, some banks don't report a short sale. In addition, in the event of a foreclosure, in Florida the lender will seek a deficiency judgement in the amount you owe. Your credit could recover from a short sale in two years, whereas a foreclosure or bankruptcy can take 7-10 years. A short sale by itself will likely lower your credit score by about 50-120 points. The hardest hit to your credit score typically comes from missed mortgage payments rather than the actual short sale itself.
- What are the qualifications for a short sale?
The main qualification for a short sale is that you are in some type of financial hardship. This can include; loss of employment or income, divorce or separation, relocation or job transfer, major illness and medical expenses, death of the borrower, increased bills or higher living exenses. You typically must prove your inability to pay your mortgage each month, however many lenders have become more lenient and will make exceptions at times for homeowners who are not even in hardship.
- If I short sell, can the bank come after me for the money?
We will work to get a full release at closing. This release will forgive any deficiency between the amount you owe and the proceeds from the sale price of the home. Unfortunately, not all lenders will fully forgive the deficiency. You should consult a CPA regarding tax ramifications, especially if it is an investment property.
- Who will pay the Realtor commission?
Your lender pays the commission. They pay the regular Real Estate Brokerage fee, just like a homeseller would in a traditional taransaction.
- How much work will there be for me?
Not very much. To maximize the sale price, prepare the home for sale as a traditional transaction. (Refer to my Blog on Top Ten Things To Sell Your Home). We will also ask that you gather and provide us with certain financial information that we will be required to present to the lender. This may include bank statements and tax returns.
- What happens to the money forgiven from my lender?
Any shortfall on your mortgage will likely be written off as a loss by your lender. Because of this, your lender may send you a "1099" for the amount forgiven. Due to the Mortgage Debt Relief Act of 2007, you are not required to pay taxes on this money if you short sale your primary residence (homesteaded). The short sale must close by the end of 2012 to qualify. Consult your accountant.
- If I am going through a foreclosure, can I do a short sale?
YES! In fact, the lender will likely be more than happy to work with you on a short sale. It is to the bank's advatage as well as yours to work out a short sale. The foreclosure process costs a lender quite a lot of money.
- Can I stay in my house until the short sale is completed?
Yes. You will not have to move out until closing. Again, a short sale is very similar to a traditional sale.
- Will the bank continue their collection activities?
Yes, the bank will continue its collection activities. They may continue to call you or send you letters looking for payment even if you are pursuing a short sale. However, most banks will not foreclose on your home if you are acively working on a short sale.
- What if the terms of the short sale the bank gives me are unfavorable?
If the terms of the short sale are not in your best interest, you are not required to sell the property and complete the short sale. Do remember though, a short sale is the best option to avoid foreclosure or bankruptcy and will have the least negative effect on your credit.
- Are there any short sale scams to be aware of?
Be careful of scam artists or shady individuals if you are in financial hardship or facing foreclosure. Never sign a Quit Claim Deed, Power Of Attorney or an Option Contract without consulting an attorney or experienced real estate agent.
The Mary Neilson Team has successfully closed more than 75 short sales. Lenders include Bank of America, Wachovia, Wells Fargo, American Home Mortgage, EMC, Option One, Fifth Third,
and more.
Contact the Mary Neilson Team for a FREE and CONFIDENTIAL consultation.
Note that we are not attorneys or tax professionals. Seek appropriate legal and tax advice.
Call The Mary Neilson Team for all your Fort Myers, Cape Coral, Fort Myers Beach, Estero and Bonita Beach real estate needs. Foreclosure and short sale experienced.
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