What’s a short sale?
A short sale is the sale of a property when the sales price is less than the amount owed. In order to satisfy the loan obligation additional money has to be brought to the closing to pay off the loan, or the bank has to agree to accept less than the loan amount. If the transaction is handled skillfully, in most cases the bank will accept the lesser amount. If the bank doesn’t agree to the short payoff and loan payments are not made they will be forced to foreclose on the property. It costs the bank much more to foreclose on a property than accept the short payoff. Banks are not in the property management and ownership business and they ultimately have to sell the property themselves, often for less than the short sale amount. While the short sale is a loss for them, it is a better option than foreclosure.
How can we help?
We’ll outline all your options and help you assess if a short sale is right for you. Our tools will accurately run financial scenarios to help you figure out the best choice for you and your family. We bring to the table the skills and experience to maximize your chances of completing a successful short sale.
How do we do a short sale at no cost to you?
Most real estate brokers shy away from short sale transactions because they take up so many resources and might never result in any income. We invest our time, money, and efforts into marketing your property, arranging the sale, and negotiating with the bank to accept the short sale on your terms. There are absolutely no upfront costs to you and you always get final approval… no exceptions. In all my negotiations the lender pays all costs including our commission. We only get paid if your short sale is approved. You will pay nothing throughout the process or at closing.
Can the bank force a borrower to pay for the loss?
Theoretically a bank can do a judicial foreclosure and get a deficiency judgment, but that is more expensive for the bank and their chance of recovering additional money is slim. Typically banks only do this if an investor is strategically walking away from certain properties and keeping equity in others.
What happens to the credit rating of property owner?
An unavoidable consequence of a short sale is that it will negatively impact a borrower’s credit. It is important to recognize that a foreclosure will have a much worse impact on credit scores. One of the key benefits to an owner in doing a short sale is that their credit will recover much sooner.
What are the tax consequences of a short sale?
During a short sale or foreclosure there is often “forgiven debt”, which can be a taxable event very much like income. If you owe the amount of the original purchase you may be exempt from these taxes under the ““Mortgage Forgiveness Debt Relief Act”. Also there may be relief from tax consequences if the owner is insolvent right before the debt is forgiven. Insolvency is when all assets are less than all debts.
For information on debt forgiveness from the IRS website:
http://www.irs.gov/publications/p4681/ch01.html#d0e665 – see ““exclusions” and “insolvency”.
For information on debt forgiveness from the Franchise Tax Board:
Talk with a CPA or tax attorney to consider options and get tax advice.
There are many nuances to the short sale process. Always work with an experienced short sale Realtor as it will dramatically increase your chances of successfully completing the transaction.
Disclosure: This is not intended to be tax or legal advice. Always contact your lawyer or CPA for advice on these matters.
If you’re considering a short sale contact me today for quality expert advice.