WHAT IS A SHORT SALE?
Throughout Florida , the number of sellers facing financial difficulties is clearly on the rise in all price brackets. Many owners holding adjustable rate mortgages (ARMs) or interest-only loans are finding it tough to keep up with today’s higher monthly payments. Rising foreclosure rates throughout Florida and the rest of the country signal the seriousness of this problem. At the same time, a decline in sales prices over the past two years has left some sellers with little or no equity in their homes—sometimes called an “upside-down” sales situation. There are many ways to lose a home but signing away ownership in a manner that destroys credit and strips an owner of dignity is one of the hardest. For owners who can no longer afford to keep mortgage payments current, there are alternatives to bankruptcy or foreclosure proceedings. One of those options is called a "short sale." When lenders agree to do a short sale in real estate, it means the lender is accepting less than the total amount due. Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose.
Who or which properties qualify?
The Home's Market Value Has Dropped. Hard comparable sales must substantiate that the home is worth less than the unpaid balance due the lender. This unpaid balance may include a prepayment penalty.
The Mortgage is in Default. A lender will not consider a short sale if the payment is current. As long as the lender is receiving timely payments, the lender is satisfied.
The Seller Has Fallen on Hard Times. The seller must submit a letter of hardship that explains why the seller can not pay the difference due upon sale, including why the seller has stopped making the monthly payments. Examples of hardship are: Unemployment, Divorce, Medical emergency / sudden illness, Bankruptcy, Death
The Seller Has No Assets. The lender will probably want to see a copy of the seller's tax returns and / or a financial statement. If the lender discovers assets, the lender may not grant the short sale because the lender will feel that the seller has the ability to pay the shorted difference. For example, if the seller has cash in a savings account, owns other real estate, stocks, bonds or even IRA accounts, the lender will most likely determine that the seller has assets. The short sales that get accepted are those where the seller has no money or assets. Many entities profit from short sales, but the seller receives no profit from a short sale.
Short Sale Consequences
A short sale is dependent on a buyer making an offer to purchase. If you do not receive an offer, you will not qualify for a short sale. So even if you meet all the other criteria, it is possible that no one will buy the short sale. It is also dependent on the lender accepting the buyer's offer. If the lender rejects the offer, a short sale will not take place. If the lender agrees to the short sale, the lender has the right to issue you a 1099 for the shorted difference, due to a provision in the IRS code about debt forgiveness. Some situations are exempt from debt forgiveness according to the Mortgage Forgiveness Debt Relief Act of 2007. You should speak to a real estate lawyer and a tax accountant to determine the amount of short sale tax consequences, and whether you can afford to pay those taxes, if any. A short sale will show up on your credit report as a pre-foreclosure that has been redeemed. Short sales affect credit ratings. While the damage to your credit report may not be as significantly bad as a foreclosure, for example, some creditors may not make the distinction. Always seek legal counsel before attempting to pursue a short sale. Do not rely on a real estate agent for legal advice.
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