...That’s the question that seems to be on everyone’s mind these days. But before we answer that question, let’s look at what is a short sale.
A short sale is when a homeowner owes more on a home than the home is worth and they want the lender to accept a reduced payoff on the loan upon the home selling. They must list their property at ‘market value’, subject to third party approval … The lender. Once there is an offer, it must be sent to the lender’s loss mitigation department for approval. This approval process can take weeks or even months. If the lender approves the transaction, they will either accept the proceeds of the sale and forgive the amount of the shortage, or they will seek a judgment against the homeowner/seller for the amount of the shortage. Let’s assume they forgive the balance (which is the desire of a homeowner when they do a short sale), they will send the homeowner a 1099 for the amount of the debt that was forgiven. This creates a tax liability for the seller. Let’s assume the amount of the debt being forgiven is $40,000 and also assume the seller is at a 25% tax rate. That would create an additional $40,000 in reported income and additional taxes of approximately $10,000 for the seller … Something to think about (please consult a tax professional before determining the extent of your tax liability). Of course this is better than the alternative of the lender seeking a $40,000 judgment for the amount of the shortage.
Before approving a short sale, the lender will want to see evidence of financial hardship making continuing paying the loan not an option. They will look at the sellers’ income and assets to determine eligibility. If the lender determines that the seller can afford to continue paying their loan and has no reason to sell, they are unlikely to approve a short sale.
A short sale is generally a good option for those who cannot afford to keep up on their loan payments, are in default, and for whom foreclosure is inevitable. A short sale will have negative impact on the seller’s credit, but not nearly as negative as a foreclosure or bankruptcy.
A short sale is generally not a good idea for someone who can afford their payments and has no reason to move other than they just don’t like being upside-down in their property and they want out. Someone in that situation probably wouldn’t be approved by their lender do a short sale and are better offer keeping their loan current and riding out the down market before selling the home.
If you are considering a short sale and have questions, please don’t hesitate to contact me… It is a complicated transaction with serious consequences…
Make it a great day!
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10 comments:
Great article but can this relate to Commercial Real Estate
The Real Estate Market Starts Climing Again
During the past couple of years we've all seen a tremendous change in real estate in the country.
This change actually has spread all over, businesses loosing money while gas prices are extremely high.
The real estate market has become a big issue for all of us out there, we've seen many homeowners loosing their homes and struggling to find a home to rent because of their credit.
What happen to us?
Remember the bubble 4 years ago?
That's exactly the answer, from years of prosperity and times of spending, traveling and investing in stocks and real estate, we are now experiencing another bubble but this time the bubble is going in a different direction and we are wondering what to do.
So real estate was going down and it's still going down, some economists say that it will get stable in 2 years from now.
The sellers market became a buyers market, and today we all know it by now.
Investors and renters that saved their money for better days to buy to make money are in the market today, that's making the real estate market busy.
Real estate agents that learn how to change with the market also learned how to make money from the changes, these real estate professionals are making lots of money and while we are all struggling for business they're making the business.
Today you can get a home directly from the banks for almost half the price.
I've seen homeowners that are so desperate that they're willing to give their homes for free, just come and take their loan and continue their payments.
On the other hand, investors are looking to buy homes in bulk, they can get homes $.50 on the dollar.
Some banks like bank of america and countrywide are selling hundreds of homes in bulk to investors at a discount prices.
So real estate agents are busy getting hundreds of listings and reo's from banks, then they're selling these homes at a low price to future homeowners and investors.
It's definitely a buyer's market like we had in the early 90's, so if you're an investor or a homeowner.
This is your time!
Good Article. I agree, if you can pay your payments and there is no real reason for you to sell your home - there is no need to do a short sale. However for those going through hard times, there is a bit of good news, you can receive a bit of a break. As explained, upon approval of a short sale, the seller will receive a 1099 and would ordinarily be responsible for taxes on the forgiven debt. However, Bush recently passed a bill that forgives the tax debt on all short sales or the like through January of 2009.
So is you are in this situation and need to sell fast for whatever reason, check us out at www.xpresshomebuys.com. Feel free to google 'Bush debt forgiveness' to verify this information.
This is one of the best articles I have come across in recent years about short sales, I must thank you for posting such a nice article.
Thanks for interesting writing. A short sale is a great option to foreclosure but entirely should not be considered a good thing. Short sales will lower your credit score.
It is my understanding that the agent handling the short sale can negotiate with the lender how the deficiency will be handled. By that I mean, the agent can negotiate how the "foregiven" amount will be reflected on the sellers credit report. such as "paid as agreed" or "paid, amount received less than amount owed."
Jeff
http://lending-solutions.net
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I believe a short sale is generally a good choice. For the investor buyer, a short sale offers them the opportunity to buy a property for as much as 40% or more below market value.
Happily, we have seen some firmness in the market recently. The homes we stage seem to be selling faster than normal.
Good article, but, a few more thoughts:
Short sales are generally an excellent financial move for anyone just looking at the numbers...even JP Morgan did a "strategic default" on 5 office properties they owned in California...
Consequences -- like anything and everything on a short sale...ALWAYS negotiable and will vary depending on who the Servicer is on the note, and, who the Investor is on the note...if you know who to call, you can greatly mitigate consequences.
Anyway, I'll keep it short, I wish everyone all the best.
Sincerely,
Ben Benita,
Short Sale Negotiations Expert
Radio Co-Host:
"Ask The Experts"
Best Selling Author -
"Are You More Likely To See Bigfoot Or A Short Sale Approval Letter?"
BBenita@Comcast.net
Office -- 703-754-7551
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