So…What is a Short Sale?

In Distressed Sales, forclosure, foreclosure, government, home sellers, homeowner, miami, miami beach, Miami-Dade County, modification on November 10, 2010 at 12:15 pm

Whether buying or selling, knowing what a Short Sale is and how they work can help you through the process. In this article, I will concentrate on helping home owners in distress explore this very important alternative to foreclosure.

A short sale can be an excellent solution for homeowners who need to sell, and who owe more on their homes than they are worth. In the past, it was rare for a bank or lender to accept a short sale. Today, however, due to overwhelming market changes, banks and lenders have become much more negotiable when it comes to these transactions. Recent changes in corporate policy and the Obama administration have also improved the chances of getting a short sale approved.

But to be technical, here’s a more official definition:

  • A homeowner is ‘short’ when the amount owed on his/her property is higher than current market value.
  • A short sale occurs when a negotiation is entered into with the homeowner’s mortgage company (or companies) to accept less than the full balance of the loan at closing. A buyer closes on the property, and the property is then ‘sold short‘ of the total value of the mortgage.

For homeowners to qualify for a short sale, they must fall into all of the following circumstances:

  • Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
  • Monthly Income Shortfall – In other words: “You have more month than money.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
  • Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.

This seems simple enough, but it is a complicated process that takes the expertise of experienced professionals. Find a CDPE in your area by clicking here. Together, you can identify all possible options and, when possible, a CDPE can assist you in the quick execution of a short sale transaction.

Ignoring your lender and court notices can be very costly over the long run. For instance, many employers may frown on a foreclosure record, including some financial industry, military and positions requiring security clearance to name a few.

Also, selling short can allow you to buy again in as little as two to three years. A foreclosure would stop you from being able to buy again for at least 5-7 years, it stays in your credit report for at least 7-10 years and requires you to answer “yes” to any loan or employment application where you are asked if you have had a foreclosure in the past, affecting your ability to borrow (even if allowed, your rate, down payment and other factors may cost more), or apply for certain employment opportunities.

Even more important, there is the issue of what happens to the short fall. Lenders can choose to issue a 1099 causing “phantom income” that must be reported with your income tax (consult a competent tax expert/CPA to see how this may affect you), or a deficiency judgment.

A deficiency judgment is an injunction against you the lender obtains from the court that allows them to pursue you for the shortfall (consult with a competent real estate/bankruptcy attorney for possible solutions), possibly stretching this difficult period beyond the foreclosure date.

Although either is also a possibility with short sales, the size of the short fall is usually mitigated during a short sale, where a foreclosure typically leads to bigger shortfalls. This means that allowing the property to be foreclosed, may cost you more in the long run than if you were to work with a team of competent experts to sell your house ‘short’.

For more information and to explore this option to foreclosure CONTACT US today.

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