|
|
What is a short sale?
A short sale is a sale of real
estate in which the proceeds from the sale fall short of the balance
owed on a loan secured by the property sold.
In a short sale, the bank or mortgage lender agrees to discount a
loan balance due to an economic or financial hardship on the part of
the mortgagor. This negotiation is all done through communication
with a bank's loss mitigation department. The home owner/debtor
sells the mortgaged property for less than the outstanding balance
of the loan, and turns over the proceeds of the sale to the lender,
sometimes (but not always) in full satisfaction of the debt. In such
instances, the lender would have the right to approve or disapprove
of a proposed sale.
Extenuating circumstances influence whether or not banks will
discount a loan balance. These circumstances are usually related to
the current real estate market and the borrower's financial
situation.
A short sale typically is executed to prevent a home foreclosure.
Often a bank will allow a short sale if they believe that it will
result in a smaller financial loss than foreclosing. For the home
owner, advantages include avoidance of a foreclosure on their credit
history and partial control of the monetary deficiency. A short sale
is typically faster and less expensive than a foreclosure for all
parties involved. A short sale is nothing more than negotiating with
lien holders a payoff for less than what they are owed, or rather a
sale of a debt, generally on a piece of real estate, short of the
full debt amount.
What is a lien release?
A Lien Release is a release of the bank or lender's security
interest against a property upon receiving their accepted payoff.
There can multiple liens of various kinds on a property such as tax,
homeowners' association dues, and mechanic's liens. The property
ultimately will be conveyed with a clear title since all liens will
have to be resolved.
What is a deficiency note, judgment or promissory note?
A deficiency note, judgment or promissory note may be issued when a lender approves a
lien release , but requires the home owner to pay the difference
between the original payoff and the accepted short sale payoff. If
this occurs, the bank or lender will indicate this clause prior to
closing with the acceptance of the short sale. If this occurs, we
can often negotiate a reduced amount due. The lender may execute a deficiency note, judgment
or promissory note on a case by case basis dependent on
debt-to-income ratio.
A financial institution may pursue the entire
balance if the home is foreclosed upon.
What is a Satisfaction?
Satisfaction occurs when the bank or lender accepts the short sale
as a complete satisfaction of the note. As a result, the lender agrees
to release the lien against the property without threat of
future collection on the note.
What is the timeline
for a short sale?
The short sale, from the beginning to closing, can be a lengthy
process and rather frustrating at times for the home owner. Each bank or lender handles short sale requests differently
and some are more demanding than others. In today's turbulent real
estate market, financial institutions are struggling to keep up with
the large volume of short sale requests received on a daily basis.
Due to these circumstances, we ask for your patience during the
short sale of your property.
Do I have to talk with
the lender?
During this difficult period, you typically will have had previous
contact with the lender because of being past due on mortgage
payments. When a short sale proceeds, all subsequent conversations with
the lender will be handled by our staff. Unless it is absolutely
necessary for you to make a call, we will handle all negotiations.
How much time do I
have?
It depends on how many months you are behind on your mortgage
payment and your particular lender. In most cases, you will receive a foreclosure notice after
failing to make a payment for 90 days. Please know that foreclosure
proceedings vary from state to state. Once foreclosure proceedings
have been issued, you typically have thirty days before the auction
date.
When do I need to vacate
the property?
It is in the home owner's best interest to seek alternative living
arrangements as soon as possible. When a foreclosure date is
postponed, the homeowner has the option to continue to live in the
property for the duration of the short sale process. However, we
highly suggest a home owner begin moving personal items in order to
be prepared for the pending sale of the property.
You are still responsible for the utilities and condition
of the property until closing.
Will I face any tax
consequences as a result of a short sale?
The Mortgage Forgiveness Debt Relief Act was introduced in Congress
on September 25, 2007, and became law on December 20, 2007. This act
offered relief to homeowners who would formerly owe taxes on
forgiven mortgage debt after facing foreclosure. The act extends
such relief for three years, applying to debts discharged in
calendar year 2007 through 2009. (With the Emergency Economic
Stabilization Act of 2008, this tax relief was extended another
three years, covering debts discharged through calendar year 2012).
Normally US law dictates that when a lender decides to forgive all
or a portion of a borrower's debt and accept less, the forgiven
amount is considered as income for the borrower and is liable to be
taxed.
However, after the signing of the Mortgage Forgiveness Act,
amendments have been made to remove such tax liability and allow the
borrower and lender to work freely together to find a common
solution that is beneficial to both parties. This protection is
limited to primary residences -- rental properties are ineligible
for relief -- so consultation with a tax advisor is necessary to
ensure that a borrower qualifies. The amount of forgiven
mortgage debt allowed to be excluded from income tax is limited to
$2 million per year.
Regarding investment properties and non-owner occupied properties,
please consult a tax attorney.
Can I profit from a
short sale?
A home owner will not have the ability to earn a profit from the
short sale of his/her property. Upon a bank or lender approval, a
clause will state the
following: "The seller is to receive no proceeds from the
transaction."
Banks and lenders include this clause for two reasons:
1.) The financial institution is taking a loss on what is owed to
cover the original payoff by accepting a discounted purchase price
2.) The financial institution will typically cover all of your
closing costs including but not limited to : delinquent real estate
taxes, HOA fees, public utilities, and transfer costs.
|
|
