Short Sales

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Are you considering selling your home in a short sale? The main requirements for a short sale are that you owe more than your home is worth, and you have a financial hardship. While you do not have to be behind on payments, the bank will be much more willing to work with you if you are.

 

To find out what your home is worth contact a Realtor who can bring you sold data on comparable properties, as well as view your home. This is a good time to discuss what will be involved in marketing your home, primarily keeping it show ready and available for viewing at all times. From a buyers point of view having a home occupied is an obstacle for them to work around. If your property is tenant occupied than it is STRONGLY suggested you have the tenant move before bringing the property to market. More details on this subject can be found under "Preparing my home for Sale".

 

Financial hardship can be anything from loss of job, reduced pay, divorce, illness, relocation, to your interest rate adjusting to an unaffordable level. This is very individual and will be considered on a case by case basis. Having a well written professional hardship letter is one of the most important pieces of your short sale package. This package will be put together and submitted by your Realtor, but getting them the information they need in a timely manner is very important.

 

Most people wonder how this will affect their credit, what are the legal and tax implications of a short sale, and how long it will be before they can buy another home. A short sale will show on your credit report with the terminology "settled in full for less than owed” or similar. It will lower your score, but probably not as much as continual missed payments. In the past a homeowner would be taxed on the amount of forgiven debt, but new legislation has reversed this rule, and there are now no negative tax implications. A homeowner who was delinquent when they sold their home in a short sale must wait 2 years before they can purchase another property. If they were not delinquent at the time of the sale than there is no waiting period.

 

One of the trickiest areas to navigate in a short sale is the holder of a second mortgage, if any. Because the first is agreeing to walk from an often large portion of their debt, this leaves nothing for the second. That is why it is preferable that your first and second to be with the same bank. The second must approve the sale whether they are getting paid or not, and will often hold things up until someone gives them something, if they are from a different bank.  It is not uncommon for the first to agree to pay them a token amount like five or ten thousand dollars. Sometimes the homeowner will come up with money as well. After the sale is approved there is still a possibility that the second can come after a homeowner for the balance. Their rights in this area depend on if the loan was an original purchase loan, refinance or HELOC. The only way to know for sure is to consult an attorney. If a second agrees to a payoff amount for cancellation of debt, get it in writing.  

 

 While this advice or that of anyone else can serve as a guideline for making your decision, it is highly recommended that you consult an attorney who specializes in this area.

 

 

ann otto - 619-540-1003