What is a Short Sale

 Introduction

For home owners who no longer wish to or no longer can keep their home and find they can not sell due to owing more than the home is currently worth, the best solution may be a short sale.

Selling your home the Short Sale 

A short sale in real estate occurs when the outstanding obligations (loans) and cost of selling are greater than what the property can be sold for. Short sales are a way for a homeowner to avoid foreclosure and still be able to pay off their loan(s) by settling with their lender(s). However, the terms under which a lender approves a short sale depend on the borrowers circumstances as well as the lenders specific guidelines. The ideal candidate for a short sale is one where:

1. The payment is delinquent or could be in the foreseeable future. Many lenders will not work with home owners who are successfully making their loan payments. It is best to check with your lender on their specific policy.

2. Have a qualifying hardship. Examples that qualify are divorce, loss of a job, medical bills,  reduction in pay, etc.

3.Have no major assets (401Ks or IRAs are typically an exception unless sizable). Lenders who see homeowners with large bank accounts or assets may in some cases require the borrower to financially contribute to settle a portion of the debt in a short sale.

Like most guidelines, these criteria are in constant flux and depend on your particular circumstances. Please feel free to contact us to discuss your unique situation. Should you elect to proceed with a short sale, we have included forms within this website that will need to be completed prior to putting your home on the market.

 Additionally, some lenders have customized packages that will need to be completed as well. Please contact us so that we may get your particular lenders forms to you.

 Short Sale vs. Loan Modification 

Consider a Short sale if: 

• Unemployed or significant
• Reduction in income
• No longer want the home
• Loans greatly exceed value of the home (most home owners owe 50% more than the current value of their home)
• Have failed at loan modification

Here is a quick check-list of some things to consider when deciding whether to loan modify or short sale your home:

Consider a Loan Modification if: 

• Employed
• No major change in income
• Want to keep the home
• Only need the loan s interest rate or term altered (i.e. do not need principal reduction banks are not generally doing principal reductions)

 The benefits of doing a short sale are both immediate and long term:

 Short term Benefits: 

• Less damage to credit (which may impact a variety of things such as the ability to secure a rental home, retain credit cards at lower rates; obtain financing for cars).
• Lower tax liability (if any) due to typically higher payout tolender
• Clearing employment background checks
• Retention of employment
• Stigma of foreclosure is avoided
• Predictable move (rather than unpredictable eviction)
• Possible relocation incentives (some lenders, some programs)

 Long term Benefits:

• Quicker recovery of credit
• Ability to apply for a mortgage in 2 years vs. 7 years for a foreclosure.
• While many traumatized home owners find it hard to imagine owning a home again, the truth is most will. The more quickly a home owner can recover and re-enter the housing market, the higher the likelihood of obtaining a home at today's lowered values.

 Foreclosure

Too many people falsely believe that the easiest way to dispose of a home is through foreclosure. What few realize is that depending on their loan(s) they can potentially be sued after foreclosure by their lender for the deficiency. Loans such as home equity lines are a personal debt and therefore are not automatically extinguished by foreclosure. The anti-deficiency laws are complex and have some grey areas. If your loans fall under a grey zone, we suggest legal counsel to explore your best options.

Mortgage Debt Relief Act 

Any forgiven debt on a mortgage, whether forgiven through foreclosure or forgiven through a short sale, will result in the issuance of a 1099 (a 1099C for cancellation of debt on a foreclosure or a 1099A for abandonment of debt on a foreclosure). However the Mortgage Debt Relief Act passed in 2007, offers some relief of taxation for primary residents. For specifics on this program which ends in 2012, please consult your CPA or tax accountant. Also, the IRS website addresses this issue in depth. Go to : http://www.irs.gov/ and do a keyword search on Mortgage Debt Relief Act.

 Why sellers choose Gator Homes Realty

Many companies charge upfront fees to agree to take on a short sale. We don't. We are paid by the lender, and only if we are successful in negotiating a resolution. While it is understandable that other companies are trying to offset the large volume of additional work and effort to handle a short sale by charging these fees, we simply believe it is not in the best interest of the consumer. Nor do we believe a fee should be charged when no one can guarantee the terms of the approval. Beware of companies who charge upfront fees or make unrealistic promises. Additionally, some agents have not handled short sale transactions before and may simply lack the knowledge or systems to process them. Make sure any agent you hire has the experience to help guide you through the labyrinth of short sales.

For more answers to commonly asked questions, please review our FAQ section. The information provided should not be construed as legal or tax advice. Our goal, as always, simply remains to help our clients through this challenging market.

 By electing to do a short sale rather than simply foreclose, you will not only help protect your ability to purchase a future home, you will have taken the high road in trying times. Despite the time involved in doing a short sale, there is an emotional benefit to doing the “right thing”.