If you currently are unable to make your mortgage payments, have a mortgage balance that exceeds the value of your home, and are facing financial hardship, you may be eligible to sell your home for less than you owe your Mortgage Lender in a “Short Sale.”
The lender absorbs the loss, real estate commissions, attorney’s fees, back taxes, and other arrearages. The advantage to the lender is that they avoid the costs of foreclosing, repossessing, owning, managing, and re-selling the property.
You need an experienced attorney working with a team of short sale professionals who know how to contact the right department within the lender’s organization and find out exactly what their short sale package requirements are and who know how to put it together in a way that makes the decision for the lender easy. Your attorney will also be able to explain the process to you and, as importantly, to your buyer and their agent. Short Sales are complicated, not easy to negotiate, and are best dealt with by a specialized professional. Our team of real estate Short Sale attorneys and real estate professionals are experienced in this complex area and can guide you through the process as smoothly as possible to minimize the stress and headaches.
To qualify for a Short Sale, you must demonstrate that you have a financial hardship that prevents you from paying your monthly mortgage. The following are some of the financial hardships that will help you qualify for a Short Sale:
We will help you write your hardship letter to the lender. This statement of facts describes how you got into this financial bind and makes a plea to the lender to accept less than full payment. Lenders can understand if you have a real financial hardship like losing your job, a death in your family, or unexpected medical expenses, but Lenders are not going to be sympathetic to situations involving dishonesty or criminal behavior, so it is important that you be honest about your hardship.
It is best to be truthful and honest about your financial situation and disclose assets. Lenders will want to know if you have savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other real estates, or anything of tangible value. Lenders often require assurance that the debtor cannot pay back any of the debt that it is forgiving. We will help you put together your financial package.
If your bank statements reflect unaccountable deposits, large cash withdrawals or an unusual number of checks, it's probably a good idea to explain each of those line items to the Lender. In addition, the Lender might want you to account for each and every deposit so it can determine whether deposits will continue.
Sometimes markets decline and property values fall. If this is part of the reason that you cannot sell your home for enough to pay off the Lender, this fact should be substantiated for the Lender through an appraisal/comparative market analysis (CMA).
Generally clients are concerned about the potential liability to repay the difference between the amount owed to the Lender and the amount received by the Lender as part of the Short Sale. This amount is known as a deficiency. As part of the Short Sale process, we will negotiate with your Lender(s) to have them release you from any liability for any outstanding deficiencies. While there is no guarantee of success, many Lenders have become increasingly willing to release the homeowner from any liability for the loan deficiencies in a Short Sale.
A home owner selling their house in a Short Sale could potentially be liable to pay taxes on the deficiency. The most common result of a Short Sale for the homeowner is that the Lender can file a 1099-C ("Cancellation of Debt Form") which may subject the homeowner to tax liability. The I.R.S. in turn will consider the debt forgiveness as income. However, recent legislation, known as the Mortgage Forgiveness Debt Relief Act of 2007, allows the homeowner to exclude the "income" if they qualify by filing Form 982 ("Reduction of Tax Attributes Due to Discharge of Indebtedness") through the end of 2013. It is unclear as of now whether Congress will extend this law beyond 2013. You should contact your accountant to learn more about these potential tax implications.
Homeowner's are usually forbidden by the Lender(s) from receiving any proceeds from the sale of their home. This is part of the incentive for the Lender to accept less than what they are owed. However, some Lenders are now offering financial incentives for home owners who want to do a Short Sale on their homes. Contact us to find out whether you may be eligible for these financial incentives.
Here are sample steps of a short sale:
If you are in danger of a foreclosure you should consider a short sale. Please call us for a free consultation.