What is a real estate short sale?

A real estate short sale is when you owe more than your property's current value but you need to sell. In a typical real estate transaction, your mortgage lenders would require you to come in with the difference in the amount owed. In the case of a short sale, we negotiate with your lenders to accept a pay-off that is less than the amount you currently owe and you do not have to pay the difference.

How much will this cost?

Since the majority of people facing foreclosure do not have the necessary funds available to pay for typical real estate transaction fees, all of the real estate services will be paid directly by your lender. Absolutely NO fees are due from you. Real Estate practitioners only receive payment if the negotiations with your lender are successful.

What is required for a real estate short sale?

In order to get a real estate short sale accepted for you, you first must list your home for sale. During the listing period, you will need to provide the following documents so that we may package a real estate short sale request to your existing mortgage lenders. Each lender has unique requirements but the following items are usually requested.

Please gather the following:

-Last two years W-2's or tax returns if self-employed

-Most recent two months of pay stubs or current Profit and Loss (P&L) if self-employed

-Most recent two months of bank statements for checking/savings accounts

-Current mortgage statement or payment coupons for all existing mortgages

-Hardship letter explaining your situation and need to sell

With these documents, we create a package and submit it to the appropriate department with your lender once we have an accepted purchase offer for your home.

Who can qualify for a real estate short sale?

There are multiple reasons why a mortgage lender will accept a real estate short sale. For one, if your financial situation has changed and you are currently making less money than before you most likely qualify for a real estate short sale. Second, if you have more money going out each month than you have coming in, you are a qualified short sale candidate. Lastly, everyone's situation is unique and the lenders will consider all short sales. The hardship letter usually outlines the reason for your short sale request.

How will a short sale affect my credit?

What typically happens is the loan will show up as “paid" on your credit report; however there can be a notation that says "settled for less than originally owed. “ This is much more favorable than having a foreclosure on your credit report. In addition, the bank/lender reserves the right to add a deficiency judgment to your credit report for the discounted amount. In the state of California, a bank/lender is not allowed to place a deficiency judgment against a homeowner if the transaction is a purchase money loan on a primary residence. Please do not postpone the inevitable and wait until you are close to foreclosure. The best way to preserve your credit is to act quickly. Your credit will not be affected as much if we can successfully complete a short sale within the period of a couple missed mortgage payments.

How will a short sale affect my taxes?

According to the IRS, if you have reached a compromise or settlement with a creditor/lender agreeing to release you from any further obligations regarding the repayment of a debt, a creditor/lender may report this as "cancellation of debt" income.

Your lender may choose to "write off" all or part of the debt it claims that you owe, and report it as a tax loss to the IRS using a 1099-C. In most cases, you may be able to avoid taxation. The IRS recognizes five situations where a cancelled debt may not have to be reported as income.

Mortgage Forgiveness Debt Relief Act of 2007

http://www.whitehouse.gov/news/releases/2007/12/20071220-6.html

1. Insolvency - your total debts exceed your total assets at the time your debt was settled or deemed non-collectable

2. Bankruptcy - the debt was already discharged through a bankruptcy proceeding

3. Indebtedness due to certain real property business losses

4. Indebtedness due to a qualified farm expense

5. Discharge of your debt was treated as a gift (extremely rare)

Most sellers fall into the insolvency category. If you are insolvent, you must inform the IRS by completing IRS Form 982: Reduction of Tax Attributes Due to Discharge of Indebtedness and include with your individual tax return in the year you receive the form 1099-C.

This information is provided for your information only and is not intended to be a tax or legal opinion. You should confirm the implications of debt discharge with your tax advisor.

Do I need a real estate short sale?

If you owe more than your home is worth and you need to sell your home, please contact us regarding our short sale services.

The short sale process can vary, but it will generally work as follows:

1) Meet with a listing specialist to determine if a short sale is the right decision for your families needs.

2) Execute a listing agreement and put your property on the MLS. A client authorization is signed so we can negotiate with the lender. A lock box and real estate sign are placed on your property. We also discuss exit strategies for when the property is sold.

3) A negotiator will contact your bank/lender to determine the requirements for a short sale.

4) The lender requirements are given to you so you can begin to gather documentation.

5) An offer from a buyer to purchase the property is recieved

6) We put the short sale package together for the lender including all required documentation and a purchase contract.

7) Once the lender receives the full package they will order a Broker Price Opinion (BPO) or a full appraisal.

8) When the BPO or appraisal comes back the bank will either accept the short sale or begin negotiations with our team of experts to determine the best solution to get the short sale transaction accepted.

9) One of two things will happen:

a) The bank approves the short sale and we go into a regular escrow, often times closing within 10 days.

b) The bank gives us a value they would be willing to accept and we counter offer the buyer at a higher price. Either the buyer will accept or we will put the property back on the market at the requested price.

10) Upon lender approval, an escrow period will begin and before long, the property is sold.

11) We then help you with the previously determined exit strategy. Most of our clients decide to rent after a short sale but we would be happy to help you no matter what your decision may be.

12) You get to move on with your life and sleep easier at night!