Breaking Through the Hype of Short Sale
Lawrence D. Elliott
November 07, 2007
Okay, I know it's been in the news, usually when something is hyped, it can be distorted or misrepresented. So, whether you have a home in Pomona or a condo in Chino Hills, I will give my take on the short sale process. My take, by the way, is based on 18 years of real estate experience, which includes a lot--and I do mean a lot--of short sales!
Okay, here we go...
A short sale is when you sell your home and the lenders agree to accept a payoff which is less than the full amount of the borrower's debt, including the cost of the sale. Usually, it is used when a homeowner can no longer meet their obligations to the loan and is an alternative to foreclosure.
Recently, I was interviewed for an article in California Real Estate Magazine (which is available by clicking here). I warned of the numerous pitfalls you must avoid when your agent performs a short sale on your behalf. Avoid them, and you could be successful. Ignore them, and you could pay for it for years to come. There are legal and tax consequences that you need to be aware of before you sign the contract. The agent you select should be able to explain them to you thoroughly or direct you to the proper expert.
Here are some things to remember when considering a short sale:
Your financial situation had to have been caused by a genuine hardship. Usually illness or a loss of income is a valid reason. You will also need to provide proof of your financial situation, which could include a financial statement, tax returns, pay stubs, and bank statements.
You cannot net a dime after the sale. In fact, you may be asked to participate in the shortage if you have savings, retirement accounts, or other assets. You may also be required to pay for an appraisal.
You can't price the property at a low price just to make a quick sale. Lenders frown on this. The list price must be in line with the market. Fire sales are not allowed!
There may be a tax liability on the forgiveness of debt. For example, if the shortage is $20,000, it would be like someone cut you a check...for $20,000. Of course, there are exceptions. For this reason, you should consult a tax professional before performing a short sale.
Your lender could come after you on the shortage under certain situations. For example, you refinanced your home eight months ago and received $50,000 cash from the equity. Now, you want to perform a short sale because you can't make the payments. They really hate that!
If you were not truthful on your application, you could be S-O-L! That's Short Sale: Out of Luck, of course! That means if you claimed you made $6,000 a month and you only make $2,000...on a good month, that's fraud!
I could go on and on, but I think you get the point. This is not a responsibility to be placed in the hands of an amateur. And even if everything is done correctly, there is no guarantee the lender will grant you a short sale. But if done right, you increase your chances their answer will be a resounding "Yes!"
Additionally, with the market changes we are experiencing and the number of homeowners who are facing financial difficulties, short sales will most likely increase in the next few years. If you are faced with this choice, do yourself a favor. Select an experienced professional for the job!
Okay, here we go...
A short sale is when you sell your home and the lenders agree to accept a payoff which is less than the full amount of the borrower's debt, including the cost of the sale. Usually, it is used when a homeowner can no longer meet their obligations to the loan and is an alternative to foreclosure.
Recently, I was interviewed for an article in California Real Estate Magazine (which is available by clicking here). I warned of the numerous pitfalls you must avoid when your agent performs a short sale on your behalf. Avoid them, and you could be successful. Ignore them, and you could pay for it for years to come. There are legal and tax consequences that you need to be aware of before you sign the contract. The agent you select should be able to explain them to you thoroughly or direct you to the proper expert.
Here are some things to remember when considering a short sale:
Your financial situation had to have been caused by a genuine hardship. Usually illness or a loss of income is a valid reason. You will also need to provide proof of your financial situation, which could include a financial statement, tax returns, pay stubs, and bank statements.
You cannot net a dime after the sale. In fact, you may be asked to participate in the shortage if you have savings, retirement accounts, or other assets. You may also be required to pay for an appraisal.
You can't price the property at a low price just to make a quick sale. Lenders frown on this. The list price must be in line with the market. Fire sales are not allowed!
There may be a tax liability on the forgiveness of debt. For example, if the shortage is $20,000, it would be like someone cut you a check...for $20,000. Of course, there are exceptions. For this reason, you should consult a tax professional before performing a short sale.
Your lender could come after you on the shortage under certain situations. For example, you refinanced your home eight months ago and received $50,000 cash from the equity. Now, you want to perform a short sale because you can't make the payments. They really hate that!
If you were not truthful on your application, you could be S-O-L! That's Short Sale: Out of Luck, of course! That means if you claimed you made $6,000 a month and you only make $2,000...on a good month, that's fraud!
I could go on and on, but I think you get the point. This is not a responsibility to be placed in the hands of an amateur. And even if everything is done correctly, there is no guarantee the lender will grant you a short sale. But if done right, you increase your chances their answer will be a resounding "Yes!"
Additionally, with the market changes we are experiencing and the number of homeowners who are facing financial difficulties, short sales will most likely increase in the next few years. If you are faced with this choice, do yourself a favor. Select an experienced professional for the job!
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