What is a Short Sale?

What is a short sale?

A real estate short sale is a form of agreement between the seller of a home in the

beginning stages of foreclosure and their lender, allowing the home to be sold for less

than the existing loan balance outstanding. The mortgagee would accept less than

the loan amount in order to avoid a foreclosure proceeding. This short sale would

result in a substantially discounted purchase price for the buyer of the home. The

buyer would then proceed with the purchase of the home much the same as in any

conventional real estate transaction.

Why would a lender agree to a short sale?

Lenders are in business to make money and keep down losses. When a borrower

gets behind on their loan payments, the lender has the right to take the property to

pay off the debt. However, in the current real estate market, many properties cannot

be sold for the amount owed against them. It is possible to persuade lenders to take

less than the full amount owed if the lender believes that it will make more money

through a short sale than through a foreclosure.

How long does it take to close a short sale?

This is totally up to the lender. Some lenders take as little as two weeks, some over

six months. The only way to know is to start the process. The key is making sure that

your short sale package is complete, and that you follow up daily with the lender.

I want to do a short sale and have a 2nd mortgage,

does this make me ineligible?

No. Both of your lenders will need to be satisfi ed in some way to complete the short

sale. If your fi rst lender will be paid off by the sale, then you just negotiate the terms

with the second lender.

Will a short sale destroy my credit?

Yes and no. The short sale may not show up on your credit. In fact, most mortgage trade lines report “Mortgage Paid” after a short sale. Any late payment history will still appear, as will any Notice of Default fi lings. What won’t report is an actual foreclosure. A promissory note may prevent the lender from reporting the mortgage as a loss. In today’s credit market, a foreclosure may prevent you from obtaining a mortgage for at least 5 years, longer than a bankruptcy.

What is a Hardship?

Some examples of a hardship include:

• Reduced income or unemployment.

• Inability to work due to health reasons.

• Separation or divorce.

• Medical bills.

• Business failure.

• Death of a spouse.

• Adjustment in mortgage payment or

unforeseen increase in your monthly expenses.

• Any other circumstance that cripples your ability to repay your mortgage.

What is the effect of short sale on the seller?

The seller’s debt is cleared. Some lenders may mark the transaction as a settlement, which will hurt the seller’s credit score.

Are there tax implications in short sales?

Much like the issue of credit reporting, the circumstances are individual to the lender. As a short sale represents a loss for the lender, they can report the amount lost a debt forgiveness to the seller. If a formal tax form 1099 is filed, the seller may be responsible for paying taxes on the amount

of debt forgiveness.  As of Jan. 1,2011 there are no tax implications on the first loan. Verify with your lender.

Can investment properties be short sold?

Most defi nitely. Any type of property can be sold through a short sale.

For more Information go to: http://http://www.venturarealtor.org/  or http://www.liveojai.com/

Call Tami Winbury Keller Williams Realtor 805-798-3412