The Short Sale
| The Information provided below is not to be considered legal or tax advice. For tax and legal advice please contact a professional in that industry. All information provided here should be discussed with your tax and/or legal advisor prior to committing to the short sale procedure. |
What is a Short Sale? If you owe more on your home (including the costs of selling) than what it would sell for if you put it on the market today, then the home is said to be upside down or… Short.
If a home owner needs to sell the house but can’t afford to pay the difference and wants to avoid Foreclosure, then the only real option is a Short Sale. There are basically two kinds of loans…Recourse and Non Recourse. This is more of a legal question so be sure to ask an attorney which kind you have but typically a recourse loan is one that is not the original loan that a property was purchased with. A recourse loan is typically a refinanced loan or an Equity Line that has been used. A recourse loan is one that a home seller could be responsible for later if the bank does not sign off that the loan has been “Paid Settled In Full”. These words (or something similar) are the statements that can…usually… keep the banks from later coming after a home seller for the difference of what the house sells for and what is owed. This is our number one goal in our Short Sale negotiations with the bank. Check with your attorney for more information about whether you have a recourse loan or not and what the legal ramifications are. Our attorneys tell us that most investment properties (those that are not a personal residence) are typically considered recourse loans. Benefit #3 The Short Sale allows a home owner to get out from under a high balance loan. If a home owner owes $800,000 on a home that is only worth $450,000 then a Short Sale could remove that debt allowing them to get a fresh start. Benefit #4 A Short Sale may allow a home owner to stay in their house without making payments for an extended period of time. Short Sale negotiations can take a few weeks or a few months. We are not a liberty to ever recommend that a home owner stop making payments and they may not have to for the bank to approve a Short Sale but in general most of our Short Sale clients have already stopped making their house payments and for them the Short Sale is an opportunity to catch up on payments or relieve some of the financial pressure that they have been under. Benefit #5 A Short Sale may be less damaging on a credit report than a Foreclosure. A Short Sale is not good on a credit report, that’s for sure and most people will end up with late payments on their mortgage, these are also negative marks on a credit report but there is a lot of talk that Short Sales may not be as bad as a Foreclosure on a credit report. We do refer our clients to a company that specializes in getting Short Sales to show up as unreported on a credit report which could lessen the damage to your credit report. The company has about a 75% success rate and they charge about $1200 to work on a Short Sale. We will be happy to refer them to anyone who needs it. Benefit #6 A Short Sale allows a home owner to avoid Foreclosure. The Foreclosure is not a pleasant thing to go through for anyone and should almost always be the last resort. The Short Sale gives a home owner some control of the process and the ability to work with the bank instead of against it. A Short Sale is almost always a better option than Foreclosure. Top of Page |
Commonly Asked Questions What are the tax consequences of a short sale? We are not CPA’s so you should talk to your CPA for accurate and up-to-date information about the possible taxable consequences of a Short Sale or Foreclosure. Generally what we have found with our other clients is that the deficient amount could be taxable at the Capital Gains rate which is 24% of the deficient amount. 15% for Federal and 9% for State. This means if you sell a house for $500,000 but owe $600,000 then there could be a tax bill of $24,000 or 24% of the $100,000 deficiency. There are methods that our clients have used successfully to avoid the taxable consequence of the Short Sale or Foreclosure and we always give that information to our clients to review with their CPAs to find out if they will work for them as well. Can a home seller get money out of the house if they do a Short Sale? By its very definition a Short Sale is “Short” to close. This means that there is no money left over after the house is sold and the bank will be taking a Short Payoff on what is owed to them. In fact, in a Short Sale banks will have a home seller sign a paper affirming that they will receive no money from the transaction. In most Short Sales the home owners live in the home for several months without making their payments and it’s possible that the banks feel this is compensation enough. Does the homeowner have to go through the normal process of selling a house? A Short Sale is a normal sale except that it needs to be negotiated with the bank to accept a lower payoff than what is currently owed on the house. Typically you will need to go through the normal marketing process to sell the house. However, our company, The Real Estate Xperts have developed a unique home selling method called the One Day Home Selling System that will sell the house in only One Day and still get Top Dollar. This allows you to sell the house at current market value but only have the home open for One Day. This is a great way to sell any house because your life is only interrupted for prospective home buyers on One Day.
A Short Sale can take weeks to get approved or months and months and months. It really all depends on your bank(s) and how backed up they are. Who pays for the costs of selling the house? We negotiate with the bank to pay all the costs of selling the house. Regardless of what they pay us, we will never ask you to pay a dime to sell your house. The bank will normally pay for the real estate fees, termite work, title, escrow and all other costs associated with selling the house. Who does the negotiating? You can negotiate your own short sale with your banks if you like. However, because there is no cost to do a Short Sale and usually no financial benefit to negotiate it yourself it is normally best to hire a group of professionals who is familiar with the bank negotiation process. Our company is highly skilled at negotiating Short Sales. Who pays for the negotiator? The bank will ultimately pay all the fees. If they do not pay, or if you decide not to sell, there will never be a cost to you for our time and efforts. Does the bank have to accept a Short Sale? No. that is what the negotiation process is for. A Short Sale, in most cases, is a better deal for the bank than letting the house Foreclosure so the banks are often very open to it as long as the home is sold at a normal market value. Are we working for the bank? No. We work for seller as well as the buyer and their real estate agent to get the Short Sale approved by the bank. We definitely do not work for the bank. In fact we are more of a filter between the seller and the bank, showing and telling the bank only what they need to get the Short Sale approved. If a home seller says one wrong thing or submits one wrong piece of information to the bank it can destroy the Short Sale and throw a house back into the Foreclosure process. What will a home seller need to do or gather to do a Normally a home seller will need to gather tax returns for two years, W2s or profit and loss statements if they own a business, bank statements and also write a letter explaining what the hardship is and why a Short Sale is needed. We will help you put together all of these. What happens after the Short Sale? After the house is sold a home seller should count on renting for a few years. Fortunately rents have dropped and there are more vacancies so owners and managers are much more flexible these days than they were in the past. How do you get more information? If you would like more information about doing a Short Sale you can click the link below or call our office direct 714-248-6739. Top of Page |