SHORT SALESTHERE IS AN ABUNDANCE OF SHORT SALES ON THE MARKET TODAY. IF YOU ARE A BUYER- YOU NEED AN AGENT WHO CAN HELP DETERMINE IF THEY ARE PRICED CORRECTLY, AND TO HELP NAVIGATE THE TRANSACTION. IF YOU ARE A SELLER YOU NEED AN AGENT WHO KNOWS THE MARKET AND WILL PRICE YOUR HOME PROPERLY. SOME SHORT SALES ARE WONDERFUL VALUES, SOME ARE NOT. MOST ALL SHORT SALES TRANSACTIONS TAKE A MINIMUM OF 60 - 90 DAYS TO CLOSE . Most short sales arise when a seller owes more on their house than they can sell it for (upside down). The owner of the home then attempts to make an arrangement with their lender to sell the house for less than is owed. The term "arrangement" was used in the definition and is intentionally broad because the arrangement depends on the bank that holds the loan. Though there are general practices, every bank does it differently. This article will give you the most common arrangements, but if you take part in a short sale, it's crucial you assume nothing until you have the bank's policies in writing. There are some overriding principles: - There is no such thing as a free lunch. This is not some dream come true alternative to foreclosure where the money you owe magically disappears. The deficiency will be accounted for.
- In cases where the money is "written off" it's important to understand that the lenders will never actually "write something off." A person owning a principal residence on less than 2.5 acres in Arizona usually cannot be pursued for a deficiency and the lender will issue a 1099c passing their loss off to the borrower. In the past this loss was taxable to the borrower but NOT NOW because of the Mortgage Debt Relief Act. If you can get the lender to delete the clause allowing them to go after the deficiency or confirm that they will issue a 1099c which writes off their loss with the IRS. This when done makes it difficult for them to then go after the deficiency!
- Many banks will try for a promissory note for the deficiency which then must be repay.
- It is a cumbersome process. If you are entering into a short sale as a buyer or seller, don't expect it to go as quickly as any other sale. There's a lot of "back and forth".
- The employees of the lender that are negotiating the sale ARE NOT there for the benefit of the seller. Their only goal is to collect as much money possible for the lender.
- The Details of the Arrangement
Different banks have different policies. The best case scenario is to get a bank that actually "writes off" the deficiency. All that happens here is that the seller has some minor derogatory credit reporting, but doesn't actually owe the bank any more money. This credit reporting can consist of anything from "creditor settled for less than the amount due" all the way to "foreclosed." Another way that the deficiency can be written off is in the form of a judgment. This will often occur in conjunction with the 1099 reporting. It might say something on the seller's credit report such as "judgment filed against John Doe in the amount of $xx,xxx by ABC lender." This will appear in the "public record" section of the seller's credit report for 10 years (7 years is only for late payments, 10 years for public record info, don't argue, trust me). It can either show up as satisfied or unsatisfied. Satisfied is obviously better because it means that the worst thing that can happen is that the lender will report 1099 income. Unsatisfied could be a problem, because it means that a court has found in favor of the lender to collect the deficiency from you. Now they still might simply do the 1099 thing, or they might try to collect it from you. They can keep trying to collect it from you until they get it. They can garnish your wages. Your only hope then is that you qualify for a chapter 7 bankruptcy. This brings up an important note. NEVER EVER ASSUME THAT A DEBT THAT YOU OWE A LENDER IS GONE UNLESS YOU HAVE THE DETAILS OF THE RELEASE OF THAT DEBT IN WRITING. For instance, someone who had done a short sale had a first and a second loan. The bank agreed to the short sale, which ended up being enough to pay off the first loan, but not the second. The seller had assumed that because the bank agreed to the short sale that they wouldn't have to worry about the deficiency from the second mortgage. Now they are surprised that they are being pursued for the deficiency. REMEMBER, the lender(s) will always want ALL their money accounted for somehow. NEVER assume something is written off unless you have a formal, signed, written, unconditional release of lien and/or judgment from the lender specifically stating that no further action to collect this debt will be taken. Most banks will not agree to a short sale in writing until you have a formal offer. You can simply call your bank and ask them if you could do a short sale at a certain price and they might say "sure, no problem, we'd be happy to facilitate that offer." BEWARE. That doesn't mean a thing. Before your short sale is APPROVED, you'll have to submit an application, hardship letter, financial statements, tax returns, pay stubs, the purchase agreement from the buyer, a HUD statement from the pending transaction, payoff letters from all lenders involved, and several other things depending on the lender. IF YOU ARE CONSIDERING PURCHASING A SHORT SALE PROPERTY, PLEASE GIVE ME A CALL! LET ME HELP YOUR NAVIGATE THE PROCESS. YOU WILL NEED PATIENCE AND FLEXIBILITY TO COMFORTABLY TAKE PART IN ONE OF THESE TRANSACTIONS. BUT IT CAN BE DONE! IF YOU ARE A HOMEOWNER IN TROUBLE PLEASE GIVE ME A CALL TO HELP YOU EVALUATE YOUR OPTIONS! |