What you need to know about a Short Sale

By Robert Shindell

#1 A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the current debtor. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers.

#2 Before you eagerly climb aboard the short sale bandwagon, consider these four statements that determine whether you may qualify for a short sale. If you cannot answer TRUE to all four statements, you may not qualify for a short sale.

•        The home’s market value has dropped.

•        The mortgage is in or near default status.

•        The seller has fallen on hard times.

•        The seller has no assets.

#3 The seller must submit a letter of hardship that explains why the seller can not pay the difference due upon sale, including why the seller has or will stop making the monthly payments.  Examples of hardship are: unemployment, divorce, medical emergency / sudden illness, bankruptcy, and death.

The hardship letter is the beginning of the financial documents process in a short sale package. The items you attach to that letter will ultimately have a great deal of influence on the decision of the lender about whether to approve a short sale or not, and for the amount of the offer they'll accept.

Whether you're the borrower, a real estate agent, or an investor trying to purchase the home in a short sale, everyone involved should be concerned about providing all the documentation that will sway the decision of the lender.

•        Financial statements

•        Pay stubs

•        Bank statements

•        Hospital bills

•        Divorce decrees

•        Credit reports

•        Tax returns

It's a game of adding up numbers to show that the borrower is in an impossible situation leading to foreclosure or bankruptcy. It's the opposite of the process to get a loan. Then you're trying to prove you don't need it and that you're prosperous. Now the goal is to prove a hopeless payment situation.

#4 A short sale is dependent on a buyer making an offer to purchase. If you do not receive an offer, you will not qualify for a short sale. So even if you meet all the other criteria, it is possible that no one will buy the short sale. It is also dependent on the lender accepting the buyer's offer. If the lender rejects the offer, a short sale will not take place.

#5 There are tax consequences to a Short Sale. If the lender agrees to the short sale, the lender may possess the right to issue you a 1099 for the shorted difference, due to a provision in the IRS code about debt forgiveness. Many situations are exempt from debt forgiveness, according to the Mortgage Forgiveness Debt Relief Act of 2007.  You should speak to a real estate lawyer and a tax accountant to determine the amount of short sale tax consequences, and whether you can afford to pay those taxes, if any.

"ILostMyJob.com provides information, ideas, and inspiration for people in job transition. If you have lost your job and need additional help, may we suggest you find local resources on our search by state page or browse additional articles in our Get Help library. For tips about how to perform a job search, we encourage you to visit www.careercentertoolbox.com. In particular, these articles talk about having a personal strategy and mistakes to avoid. Please feel free to start your week with our Outlook News podcast at ILostMyJob.com/monday, and to receive information and updates by email, subscribe to our free Job Transition News newsletter. Thank you for your visit, and all the best!"

Comments (0)

Name

Email

Comment

smaller | bigger

I have read and agree to the Terms of Usage.

Write the displayed characters

Add Comment