Considering a Short Sale?
Here's how we can help you.
If you’re thinking of selling your home, and you expect that the total amount you owe on your mortgage will be greater than the selling price of your home after expenses, you may be facing a short sale.
A short sale is defined as a situation where the net proceeds from the sale won’t cover the total mortgage obligation and closing costs, and you don’t have other sources of funds to cover the deficiency.
A short sale is substantially different from a foreclosure, which is when your lender takes title to your home through a lengthy legal process and then sells it.
What you should do:
1. Consult a tax attorney, certified public accountant, or other expert regarding the implications of a short sale.
2. Try obtaining a loan modification first.
If you are thinking of selling your home because of financial difficulties and you anticipate a short sale, first contact your lender to see if it has any programs to help you stay in your home. Your lender may agree to a modification such as:
- Refinancing your loan at a lower interest rate
- Providing a different payment plan to help you get caught up
- Providing a forbearance period if your situation is temporary
When a loan modification still isn’t enough to relieve your financial problems, a short sale could be your best option if:
- Your property is worth less than the total mortgage you owe on it.
- You have a financial hardship, such as a job loss or major medical bills.
- You have contacted your lender and it is willing to entertain a short sale.
3. Hire Coronado Island Realty
Once you have decided a short sale is the best/only way to go, the first step to a short sale is to contact Coronado Island Realty. We have a thorough working knowledge of the short-sale process and we will guide you through the short sale process.
- Provide you with a comparative market analysis (CMA).
- Help you set an appropriate listing price for your home, market the home, and get it sold.
- Put special language in the MLS that indicates your home is a short sale and that lender approval is needed (The MLS requires that the short-sale status be disclosed to potential buyers).
- Ease the process of working with your lender or lenders.
- Negotiate the contract with the buyers.
- Help you put together the short-sale package to send to your lender (or lenders, if you have more than one mortgage) for approval. You can’t sell your home without your lender and any other lien holders agreeing to the sale and releasing the lien so that the buyers can get clear title.
4. Begin gathering documentation before any offers come in.
Your lender will give you a list of documents it requires to consider a short sale. The short-sale “package” that accompanies any offer typically must include:
- A hardship letter detailing your financial situation and why you need the short sale
- A copy of the purchase contract and listing agreement
- Proof of your income and assets
- Copies of your federal income tax returns for the past two years
5. Prepare buyers for a lengthy waiting period.
Even if you’re well organized and have all the documents in place, be prepared for a long process. Waiting for your lender’s review of the short-sale package can take several weeks to months. Some experts say:
- If you have only one mortgage, the review can take about two months.
- With a first and second mortgage with the same lender, the review can take about three months.
- With two or more mortgages with different lenders, it can take four months or longer.
When the bank does respond, it can approve the short sale, make a counteroffer, or deny the short sale.
6. A short sale may not solve your financial problems.
Unless your existing loans are purchase money loans, you need to keep in mind:
- You may be asked by your lender to sign a promissory note agreeing to pay back the amount of your loan not paid off by the short sale. If your financial hardship is permanent and you can’t pay back the balance, talk with your real estate attorney about your options.
- Any amount of your mortgage that is forgiven by your lender may be considered income, and you may have to pay taxes on that amount. Under a temporary measure passed in 2007, the Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act, homeowners can exclude debt forgiveness on their federal tax returns from income for loans discharged in calendar years 2007 through 2012. Be sure to consult your real estate attorney and your accountant to see whether you qualify.
- Having a portion of your debt forgiven may have an adverse effect on your credit score. However, a short sale will probably impact your credit score less than foreclosure and bankruptcy.
Note: This article provides general information only. Information is not provided as advice for a specific matter. Laws vary from state to state. For advice on a specific matter, consult your attorney or CPA.
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