Commonly Asked Questions about Short Sales
There is a lot of confusion in the general public regarding short sales. Below is a list of the most commonly asked questions. If you need further information or would like to discuss your options, simply fill out the form at the bottom of the page.
Q. Which Is Better, a Foreclosure or Short Sale?
Both affect your credit scores, but a Short Sale, quite often, has less of an impact. (Especially
with respect to future real estate purchases.)
Q. What Are The Qualifications For A Short Sale?
The three primary qualifications a servicer may require:
1. The current property value has declined below the loan amount.
2. The homeowner is unable to make the mortgage payment.
3. The homeowner has a qualifying hardship.
Q. What Are The Consequences of a Short Sale?
1. Potential IRS Tax Consequences:
The servicer has the right to issue a 1099 for the shorted difference, although, many are
exempt from this due to either the Mortgage Forgiveness Debt Relief Act of 2007 (H.R.3648) or
the IRS Insolvency Exception 108 (a)(1)(B). We recommend consulting with a real estate lawyer
and tax accountant to determine if the seller will have any tax consequences.
2. Deficiency Judgment (does not apply with some states):
The servicer or noteholder may have the right to pursue a summary judgment for the
deficiency. Example: The bank was owed $300,000 and sold short for $210,000. The deficiency is $90,000. The holder of the note may have the right to pursue a summary judgment for the defiency.
3. Blemished Credit Rating: e note may have the right to sue the seller for the deficiency.
A short sale is indicated on a credit report as a pre-foreclosure in redemption status. Depending
on the servicer, it may have the same impact as a foreclosure. The typical short sale will affect
credit up to 2 years, while a foreclosure is currently 5-7 years.
Most creditors may not make a distinction when reporting unless you seek specific relief. This is
why a good attorney or loss mitigation company specializing in short sales is advised.
Q. Why Would A Servicer Agree To A Short Sale?
Servicers typically lose less money when compared to a foreclosure and the additional costs
involved, such as:
• Legal fees
• Twice the title transfer fees
• Maintenance of the property prior to sale
• Utilities, HOA fees, securing the property against vandalism
• Commission & marketing costs
Q. Why Would A Seller Agree To A Short Sale?
Potential Seller Benefits
1. It typically has less of an impact on the borrowers credit rating when compared to a
foreclosure.
2. The servicer may agree to stop reporting missed payments to the credit agencies.
3. After a Short Sale, the seller is able to buy a home sooner than they would with a
foreclosure.
Q. How Is A Short Sale Different From A Normal Sale?
Marketing:
There’s no difference. We still utilize our extensive marketing program.
Home Pricing:
There’s a big difference. Value is based on current REOs and properties with closed short
sales.
Buyers:
There’s a big difference. Short sale buyers are price sensitive and bargain driven.
Q. What Is The Pre-foreclosure Sale Selling Process?
1. The seller signs a listing agreement to sell the property subject to the servicer’s
approval.
2. An agent secures an offer on the property.
3. The seller accepts the buyer’s offer subject to servicer(s)’ approval.
4. Servicer reviews the offer to approve or deny a short sale.
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Posted In Real Estate News
This entry was posted on Tuesday, May 11th, 2010 at 1:59 pm and is filed under Real Estate News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.