Short Sale FAQ
What is a short sale?
Why is a short sale better than foreclosure?
How much does it cost to do a short sale?
How do I know if I qualify for a short sale?
What are some drawbacks to short sales?
How will a short sale affect my credit?
What if I have more than one loan?
How long does a short sale take?
How do I do a short sale?
What Is A Short Sale?
Simply put, a short sale is a real, workable solution for a homeowner to get out from under a mortgage that cannot be repaid. It’s the most common alternative to foreclosure for most homeowners and allows an owner-in-default to salvage his credit, finances, and dignity.
Why Is A Short Sale Better Than Foreclosure?
The #1 reason most people choose to do a short sale rather than a foreclosure is to get out from under the debt burden, but there are lots of reasons why short sales are better than letting the bank foreclose – the credit impact from a short sale is much smaller, people who have successfully completed a short sale are generally able to purchase another home much sooner (as much as 5 years earlier than a foreclosed homeowner), and in the majority of cases, the bank will agree to waive the deficiency judgment they could otherwise pursue after foreclosure.
Here’s a more detailed list of reasons that a short sale is better than a foreclosure.
How Much Does It Cost To Do A Short Sale?
In the vast majority of cases, it costs absolutely nothing to do a short sale. We’re able to negotiate our fee with the lender and will never ask a delinquent homeowner for compensation. We’re also usually able to persuade banks to forgive all the debt currently owed without any further recourse to the owner, allowing our customers to walk away from their mortgage(s) free and clear – particularly when the owner is well qualified.
How Do I Know If I Qualify For A Short Sale?
In today’s tough economic climate, most homeowners-in-default are qualified to do a short sale – particularly on their primary residences. A highly qualified short sale candidate will have a genuine hardship that makes repayment impossible (such as loss of job or income, a family illness, work relocation, etc.), but every situation is different.
We can prequalify you for a short sale in about 5 minutes over the phone; you can reach us during business hours at 941-234-3597.
What Are Some Drawbacks To Short Sales?
There are a few issues that you should be aware of. Under the Mortgage Tax Debt Relief Act of 2008, primary homeowners are exempt from paying taxes on debt forgiveness on their primary residences, but forgiveness on second/vacation homes and investment properties does trigger taxable forgiveness. In all cases, the lender will issue the homeowner a 1099-C (“Cancellation of Debt”) but it’s not always a taxable event.
Also, cash-out refinance forgiveness is considered a taxable event unless the funds were re-invested into the home (for instance, the money was spent on a new roof, kitchen, or other substantial improvement).
The IRS does not require an owner to pay taxes on the debt forgiveness if the owner is insolvent at the time of the short sale (that is, if the owner’s total debts – including the mortgage – are higher than the owner’s total assets).
Another possibility in a short sale negotiation is that the lender will ask the homeowner for some funds or to sign a promissory note at closing. This is uncommon but does occur from time to time, particularly when the homeowner has assets. We always try to get these requests waived and are successful in most cases.
It is highly recommended that homeowners-in-default check with a CPA before agreeing to a short sale.
How Will A Short Sale Affect My Credit?
When a homeowner successfully completes a short sale, the sale is reported to the credit bureaus as “debt settled for less than the amount owed”. This in itself is a minor hit compared to a foreclosure, which is the hardest hit to a credit rating. The mortgage payments most owners miss does drop credit scores as well, but those occur in both short sales and foreclosures – and most missed payments have likely already occurred.
In all, a short sale will generally affect a homeowners credit score by 100-150 points, where most foreclosures are in excess of 350 points.
What If I Have More Than One Loan?
We negotiate with all the lien-holders. It generally takes a little longer to do a multi-lien sale than a single-lien, but we are usually successful in getting all liens forgiven.
How Long Does A Short Sale Take?
It depends on a lot of factors, but the whole process generally takes 3-5 months from start to finish. In the meantime, the owner can remain in the home until day of closing.
How Do I Do A Short Sale?
It’s easy to get started! Call us and we’ll come to your home for a consultation. It’s confidential, easy, and free. We’ll talk you through the process and explain our services in full detail. If you’ve already missed payments, DON’T WAIT ANY LONGER – CALL US TODAY AT 941-234-3597.
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- Short Sale vs. Foreclosure – Seller Information
- Foreclosure and Short Sale Alternatives
- What Is A Short Sale?
- How To Buy A Short Sale – Things To Know Before You Start
- Buying Short Sales Vs. Foreclosures
