A Short Sale is an alternative to bankruptcy or a foreclosure for homeowners that can no longer afford to keep paying their mortgage. Often, in order to avoid going through the significant costs of a foreclosure, the lender will approve a short sale by allowing a homeowner to sell (which also means allowing a buyer to purchase) the home for less than the outstanding mortgage balance, while the home is in pre-foreclosure stage (delinquent). Short Sale Steps

• Seller signs a listing agreement with a real estate agent subject to selling as a short sale with third-party approval
• The owner finds a buyer who makes an offer for less than the amount of the mortgage.
• Seller accepts the buyer’s offer to purchase the property, subject to the lender’s approval.
• Seller’s lien holder (mortgage company, bank, etc.) accepts the buyer’s purchase offer
• Transaction closes when the buyer delivers the funds, the lender then releases the lien, and the seller delivers the deed (transaction completed)
The decline in market value of a property below the total debt owed on that property does not mean that the property owner automatically qualifies for a short sale. Mortgage companies, banks, lienholders, etc. take numerous factors into consideration when determining if it will permit a short sale to occur.

Short Sale Qualifications

• The market value of the home has dropped considerably
Comparable sales must show that the home is worth less money than the unpaid balance due the lender (this unpaid balance may include a prepayment penalty)
• The homeowner’s mortgage is in or near default status
Lenders will “consider” a short sale if the payments are current, but in many cases, lenders realize that other factors contribute to a potential default. This makes the lenders eager to avoid future problems.
• The homeowner has fallen upon tough times
The homeowner must submit a letter of hardship. This letter must explain why the homeowner cannot pay the difference due upon the sale proposed sale of the property, including why the homeowner has or will stop making the monthly payments.
Examples of hardship include the following:

• Unemployment
• Divorce
• Medical emergency/sudden illness
• Bankruptcy
• Death
• Other unforeseen circumstances that caused financial hardship
• The homeowner has no assets.
The lender will request a copy of the homeowner’s tax returns and/or any financial statements available. If the lender discovers significant undeclared assets, the lender will not grant the short sale because the lender will feel that the homeowner has the ability to pay the shorted difference. Homeowners that have significant assets may still be granted a short sale but will most likely be required to pay back the shortfall.

Short Sale Consequences

A short sale cannot occur without a potential buyer. If a homeowner does not receive an offer, he or she will not qualify for a short sale. So even if the homeowner meets all of the other criteria, it is possible that the homeowner will not be able to complete a short sale. A short sale also depends on the lender accepting the buyer’s offer. If the lender rejects the offer, the short sale cannot take place.

Short Sale Tax Consequences

If the lender agrees to the short sale, the lender has the right to issue you a 1099 for the shorted difference, due to a provision in the IRS tax code about debt forgiveness. Numerous situations are exempt from debt forgiveness, according to the Mortgage Forgiveness Debt Relief Act of 2007; however, the homeowner should speak to a real estate lawyer and a tax accountant to determine the amount of short sale tax consequences and whether he or she can afford to pay those taxes.

Bottom line: Be careful, the government will try to tax the homeowner on the difference between the outstanding mortgage and the closing short sale price. Plan Ahead!

Short Sale Credit Consequences

A short sale must appear on one’s credit report. It is similar to a pre-foreclosure that has been redeemed. Short sales will affect and lower the homeowner’s credit rating. Creditors may not make the distinction may not make the distinction between a short sale and/or a foreclosure.
Remember that a real estate agent cannot give you legal advice, but you should always seek legal counsel from a real estate attorney prior attempting to pursue a short sale.

Deborah Bremner
The Bremner Group at Coldwell Banker
REALTOR, 00588885, ABR, CDPE, eAgent, CSP, SFR, HRC, CRE
(O) 310-571-1364 DIRECT
(D) (310) 800-2954
http://www.thebremnergroup.com
Accredited Buyer Representative|Certified Distressed Property Expert |Pre-Foreclosure Specialist Certified

Posted via email from Debbie Bremner’s posterous

After mostly holding steady the last few weeks, mortgage rates inched down this week, giving housing a boost leading up to the spring home buying season, Freddie Mac reports in its weekly mortgage market survey. 

Freddie Mac reported the following national averages with rates for the week ending Feb. 28: 

• 30-year fixed-rate mortgages: averaged 3.51 percent, with an average 0.8 point, dropping from last week’s 3.56 percent average. A year ago, 30-year rates averaged 3.90 percent. 
• 15-year fixed-rate mortgages: averaged 2.76 percent, with an average 0.8 point, dropping from last week’s 2.77 percent average. Last year at this time, 15-year rates averaged 3.17 percent. 
• 5-year adjustable-rate mortgages: averaged 2.61 percent, with an average 0.6 point, dropping from last week’s 2.64 percent average. Last year at this time, 5-year ARMs averaged 2.83 percent. 
• 1-year ARMs: averaged 2.64 percent, with an average 0.4 point, dropping from last week’s 2.65 percent average. A year ago, 1-year ARMs averaged 2.72 percent.