What is a Short Sale?
A Short Sale is when the homeowner owes more on their mortgage more than what the property is currently able to sell for in today’s Real Estate market place.
This can occur for many different reasons. Equity lines of Credit where the homeowner takes money out of the equity of their home to pay off bills to an amount greater than what the house can sell for including closing costs.
Another possible scenario would be the type of loan the homeowner took out originally that may be an Interest Only loan with negative amortization and penalty fees for pay offs, 100% loans and Option Arm Loans. The homeowner now may owe more than the home is worth and would have to actually come up with the difference in the money in order to sell their house.
Short Sales are many times one of the first steps in the Foreclosure process. A Short Sale is definitely, a better option for the homeowner than Foreclosure. As a Realtor ®, I have helped facilitate Short Sales and work with Lenders on behalf of homeowners.
The Short Sale process must be agreed to by the Lender, the mortgage holder. There is quite a bit of paperwork involved in this process where the Lender asks the homeowner to provide documentation proving their inability to keep up with the house payments. W-2’s, pay stubs, tax returns are just a few of the items needed by the Lender. Lenders work with Realtors quite often on Short Sales.
Some Lenders would prefer a Short Sale rather than a Foreclosure. One very important item that all homeowners contemplating a Short Sale need to be aware of, is the difference in the amount that the Lender forgives (and some Lender’s don’t forgive), the IRS does not.
The IRS considers this amount as income and you may be taxed on it. If the homeowner decides to walk away from the mortgage loan by returning the property to the Lender, it is important to know that this will affect your credit. Remember, your credit is important when attempting to later rent.
If considering Bankruptcy in the form of Chapter 7 or Chapter 13, it is vital to see an Attorney who specializes in this field so that you are informed properly as to the long-term drawbacks.
Short Sale Agent
A very important side-note is that a homeowner going through this process is many times bombarded with questionable people who offer their services at a very hefty price to the homeowner. You need to be cognizant of this and protect yourself by making sure that you are dealing with someone who really has your best interests at heart. I would suggest that you contact an experienced Realtor ® that can guide you through this process. Always use a short sale agent.
Your REALTOR® is your spokesperson to the Lender and can help you through this difficult time. In the Central Valley, from 2005 -2006 there has been a jump in default notices up 85%.
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