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Short Sales

What is a Short Sale?

A short sale is when a homeowner, in agreement with their lender, sells their property at the current market value which is less than the owner owes on the mortgage. 

Foreclosure vs. Deed in Lieu vs. Short Sale
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Credit Implication Tax Implication
Foreclosure 200-300 point reduction + No new home purchase for 7-10 years Some States Deficiency Judgment*, Issue 1099 for sales vs. loan difference
Deed in Lieu 200-300 point reduction  No new home purchase for 7-10 years Some States Deficiency Judgment*, Issue 1099 for sales vs. loan difference
Short Sale 40-80 point reduction from late pays; can purchase home in a year with credit repair Issue 1099 for sales vs. loan difference*

* Deficiency Judgment: a judgment lien against the borrower whose foreclosure or short sale did not produce sufficient funds to pay the mortgage in full.

Short Sale Credit and Tax Implications

“I can’t give legal or tax advice.  Please consult an attorney and accountant.”

  • Credit Implications
    -- Take credit hit from late pays not from the sale itself (40-80 points)
    -- Can purchase a new home in a year with credit repair
           Paid as agreed vs. settled debt
  • Tax Implications
    -- Issue 1099-c for difference between sale price and loan value
    -- “Mortgage Forgiveness Debt Relief Act of 2007” (Expires 2012)
    -- Primary Residence vs. Investment Property

    Debt was qualified principal residence indebtedness, you were insolvent immediately before the discharge, or if the debt was canceled in a title 11 bankruptcy case. (IRS.GOV)

The Short Sale Process

Although every short sale is a unique transaction, the following outlines the typical steps in a short sale.

From offer submission to close an average of two to three months.

Homeowner Defaults on Payments List Property For Sale Submit Short Sale Package BPO /Assign
Negotiator 		Negotiate Short Sale / Sell Property
Homeowner misses payments.
Lender initiates collection efforts.
Homeowner consults with expert and determines short sale is only option.
Home owner compiles all necessary paperwork.
The earlier the homeowners start the short sale, the higher the success rate. 		Homeowner works with expert and determines value of property through CMA and BPO.
If total owed is less than the property value, short sale is the best option.
Homeowner puts property up for sale. 		Short sale package is created with documents from realtor.
Lender reviews package to determine eligibility of short sale. 		The lender orders a BPO to determine value of property and the minimum sale price required
Lender assigns a negotiator 		Lender agrees to accept offer, final details are negotiated.
Lender receives approval from their investors.
All other liens on property (e.g., second mortgages) must be negotiated and settled prior to sale.
Lender reviews and must agree to final HUD-1.

* Refer to www.irs.gov and Consult Tax accountant to see if you qualify for the “Mortgage Forgiveness Debt Relief Act of 2007” (Expires 2012)

How do I get started on a short sale? Call us today 571-264-6016
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