What is a Short Sale?
A sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments.
By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes. See also deed in lieu (or foreclosure).
Check a real estate professional to determine whether your home and circumstances will qualify for short sales
Benefits of Short Sale
Allows the borrower to get on with their lives and avoid Foreclosure and/or Bankruptcy.
- MAY preserve Borrower’s credit worthiness, depending on the Lender’s guidelines.
- Allows the Lender to get a defaulting loan off their books.
- Acts as an alternative to the Lender incurring the costs of foreclosure and the carrying costs of the property until a resale can be obtained.
Why is it better to do a Short Sale instead of a foreclosure?
Foreclosure is not a good option since it can adversely affect your credit record for up to 10 years. Typically on a short sale, the loan will show up as “paid" on your credit report; however there can be a notation that says "settled for less than originally owed. “ This is much more favorable than having a foreclosure on your credit report. Better credit means you will be able to purchase a home a lot sooner - usually in 18 months.
What would qualify as a financial hardship?
Unemployment, reduced income, divorce, separation, medical bills, too much debt, death of a spouse or family member, mortgage payment increase, business failure, job relocation, illness, damage to property, military service, incarceration to name a few.
What does it cost me (Seller) to do a short sale?
Nothing! Just patience and the inconvenience of showing your home
How long does it take to complete a short sale?
From the time a short sale package and a valid offer have been submitted to the lender, it can take as little as two weeks or as long as 60 days to receive an approval of a short sale from a lender. That’s why it’s critical to price and market aggressively to receive that first offer and get the short sale process started as soon as possible. Buyers should be made aware of the timeline before placing an offer
Are there tax liabilities as a result of a Short Sale?
- See the advice of a tax expert, but it is possible that the seller must count any amount forgiven by the lender as income and pay taxes on that income, even if no actual money was received. The IRS requires lenders to submit a Form 1099 stating the forgiven amount. Sellers who meet the Internal Revenue Service definition of insolvency (either in bankruptcy or with debts exceeding assets) will not have to pay taxes on the forgiven amount.
- The U.S. House of Representatives has introduced the Mortgage Cancellation Tax Relief Act (H.R. 1876), which would eliminate taxes on any debt forgiven on a principal residence through either short sale or foreclosure.
Ask realtor® regarding the NATIONAL ASSOCIATION OF REALTORS® information on this bill
What is recourse loan?
Any loan that is not non-recourse, including all refinanced loans, equity lines of credit and loans used to purchase rental property. This includes rate & terms refinances where no cash was taken out. In case of default, the lender is not limited to taking the property back and the borrower may be personally liable on the debt. In California, any recourse loan that is foreclosed on non-judicially through a Trustee Sale, becomes non-recourse.
What is a non-recourse loan?
Any loan that is purchase-money (has not been refinanced) on an owner-occupied 1-4 unit dwelling. This definition applies to both 1st Trust Deeds and 2nd (junior) Trust Deeds. A non-recourse loan is very favorable because the lender's only recourse, in case of default, is the property itself. The lender cannot pursue the borrower for a deficiency judgment or attempt to collect money or any other asset from the borrower.
What is a "Deficiency Judgment"?
It is a judgment lien against a debtor, defendant or borrower whose foreclosure sale did not produce sufficient funds to pay the mortgage in full. This option may or may not be available to the lender, depending on whether they have made a recourse or non-recourse loan. Lenders may not seek a deficiency judgment if (1) the foreclosure is non-judicial or if (2) foreclosure or short sale is on a purchase money obligation (non-recourse) or if (3) you are short selling through HAFA program
What is a non-judicial foreclosure?
A non-judicial foreclosure is when a Trustee Sale happens at the courthouse steps. Due to the One-Action rule in California there cannot be a deficiency judgment imposed on you from either the first or second loan after the Trustee Sale. California Foreclosure Law is non-judicial.
Let us Know How We Can Help You
If you are facing foreclosure on your home, you have some options. At MirMax Housing and Finance, Inc. we will review all your options, if we determine that a Short Sale is the most appropriate solution for your situation, we can begin the process. Your lender will require set of supporting financial documents to consider a Short Sale.
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