NO SPOOKY SHORT SALES
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Friday, October 29, 2010
Friday, October 22, 2010
SHORT SALE FAQ'S
1. What is a real estate short sale?
A real estate short sale is a term of art and not necessarily a legal term. A short sale is an agreement between a borrower and their bank to accept an amount less than what is owed to them in exchange for allowing the borrower to sell their home. The mortgagee would accept less than the loan amount to avoid a foreclosure proceeding. This process is a legal solution available to borrowers that are not able to make their agreed upon monthly payments and would otherwise be unable to sell their home since their loan balance(s) may be more than the value of the home.
2. How long does a short sale take?
The short sale process can be lengthy and time consuming. The lender will require the borrower to provide detailed financial information to ensure a short sale is appropriate. While each situation is unique, it is not uncommon for the short sale process to take between 60-120 days to complete from the time an offer is submitted on the home.
3. What documents are necessary to proceed with a short sale?
The documents required to proceed will vary by lender, but most lenders will require a hardship letter in which the borrower outlines the specific circumstances as to why they cannot afford the mortgage payment. Lenders will also require copies of bank statements, pay stubs, prior year tax returns and a financial worksheet, among other things.
4. Will the seller’s credit rating be affected if they do a short sale?
It is up to the individual lender to decide what is reported to the credit bureau, and there is not a legal requirement as to how the lender must report it. With that said, it is advantageous to negotiate with the lender a s to how they will report this event to the credit services so that the negative impact to your credit score is minimized. This is one big advantage of a short sale over a foreclosure.
5. Will the lender allow the seller to make a profit on the short sale?
By the nature of the transaction, the lender is typically losing money, and so the lender will rarely allow a seller to make a profit. There are exceptions, such as if you qualify for Home Affordable Foreclosure Alternative (HAFA), which may allow the seller to receive some profit from the sale to assist with moving expenses.
6. If the seller is in Bankruptcy, will that affect the short sale process?
Yes, as most lenders consider the short sale process a collection activity being negotiated which is prohibited under bankruptcy, however, it is possible to continue to list the property while in bankruptcy, subject to some restrictions.
7. What is a Deficiency Judgment, and how will it affect me??
The difference between what a borrower owes their bank and what the bank agrees to accept as part of the sale of the property is the deficiency. Some lenders will waive all or a portion of the deficiency, which may create tax implications (see below). Other lenders may require the borrowers to pay a portion of the deficiency, either by bringing money to the closing, or by signing a note and making payments.
8. Are there tax implications in the short sale of real estate?
Again, this varies by lender. If a lender chooses to waive the remaining balance owed by a seller, the lender will most often issue a 1099-C on the debt forgiveness. This may result in tax liability. See IRS publication 4681
9. Why would a lender approve a short sale?
Foreclosing on a property is very costly for a lender. There are delays and expenses associated with the foreclosure process, and once complete, the lender will still have to sell the home. A short sale allows the property to be transferred to a buyer without the extra time and expense.
10. What if I am already in pre-foreclosure?
There may be time to still request a short sale option from you bank, but it is important to act quickly and not delay. The professionals at lawAvania stand ready to assist you, and offer a free, initial consultation to help determine if a short sale is right for you. Simply contact us to find out more.
A real estate short sale is a term of art and not necessarily a legal term. A short sale is an agreement between a borrower and their bank to accept an amount less than what is owed to them in exchange for allowing the borrower to sell their home. The mortgagee would accept less than the loan amount to avoid a foreclosure proceeding. This process is a legal solution available to borrowers that are not able to make their agreed upon monthly payments and would otherwise be unable to sell their home since their loan balance(s) may be more than the value of the home.
2. How long does a short sale take?
The short sale process can be lengthy and time consuming. The lender will require the borrower to provide detailed financial information to ensure a short sale is appropriate. While each situation is unique, it is not uncommon for the short sale process to take between 60-120 days to complete from the time an offer is submitted on the home.
3. What documents are necessary to proceed with a short sale?
The documents required to proceed will vary by lender, but most lenders will require a hardship letter in which the borrower outlines the specific circumstances as to why they cannot afford the mortgage payment. Lenders will also require copies of bank statements, pay stubs, prior year tax returns and a financial worksheet, among other things.
4. Will the seller’s credit rating be affected if they do a short sale?
It is up to the individual lender to decide what is reported to the credit bureau, and there is not a legal requirement as to how the lender must report it. With that said, it is advantageous to negotiate with the lender a s to how they will report this event to the credit services so that the negative impact to your credit score is minimized. This is one big advantage of a short sale over a foreclosure.
5. Will the lender allow the seller to make a profit on the short sale?
By the nature of the transaction, the lender is typically losing money, and so the lender will rarely allow a seller to make a profit. There are exceptions, such as if you qualify for Home Affordable Foreclosure Alternative (HAFA), which may allow the seller to receive some profit from the sale to assist with moving expenses.
6. If the seller is in Bankruptcy, will that affect the short sale process?
Yes, as most lenders consider the short sale process a collection activity being negotiated which is prohibited under bankruptcy, however, it is possible to continue to list the property while in bankruptcy, subject to some restrictions.
7. What is a Deficiency Judgment, and how will it affect me??
The difference between what a borrower owes their bank and what the bank agrees to accept as part of the sale of the property is the deficiency. Some lenders will waive all or a portion of the deficiency, which may create tax implications (see below). Other lenders may require the borrowers to pay a portion of the deficiency, either by bringing money to the closing, or by signing a note and making payments.
8. Are there tax implications in the short sale of real estate?
Again, this varies by lender. If a lender chooses to waive the remaining balance owed by a seller, the lender will most often issue a 1099-C on the debt forgiveness. This may result in tax liability. See IRS publication 4681
9. Why would a lender approve a short sale?
Foreclosing on a property is very costly for a lender. There are delays and expenses associated with the foreclosure process, and once complete, the lender will still have to sell the home. A short sale allows the property to be transferred to a buyer without the extra time and expense.
10. What if I am already in pre-foreclosure?
There may be time to still request a short sale option from you bank, but it is important to act quickly and not delay. The professionals at lawAvania stand ready to assist you, and offer a free, initial consultation to help determine if a short sale is right for you. Simply contact us to find out more.
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