Are you caught up in the foreclosure mess that is happening all around the country? Here are some tidbits of advice that may assist you in selling your home before you get that dreaded “foreclosure” on your credit report.
SHORT SALES
What is a Short Sale? A short sale occurs when a lender is willing to accept less money than the amount owed on a specific property to avoid foreclosure and taking the property back as an “REO”. “REO” stands for Real Estate Owned by a bank or lender.
In some cases it is more profitable for a lender to take some loss rather than go through the foreclosure process, and then try to figure out how to sell or liquidate the property.
If you are just getting behind in your mortgage payments, it may be prudent to consider trying to sell your property. The best way to accomplish this is through a reputable Realtor. You list your property and give your Realtor and Lender permission to exchange information regarding your property. The Lender will then decide if they are willing to work with you and your Realtor in order to liquidate the property and avoid them having to take it back in foreclosure.
Doing a short sale is not a quick procedure. Be prepared for at least a 1-2 month wait on a answer to an offer. Once the Lender agrees to consider a short sale, the homeowner must provide to them specific information. Each Lender will have their own criteria, but, for example, most will want at least the following:
1) Hardship Letter - Basically facts stating how you got into your financial situation and a request to them to accept less than full payment. Especially in today’s market, most Lenders are at least willing to look at doing a Short Sale.
2) Copies of Recent Bank Statements – The Lender will review and may ask you to explain deposits, large withdrawals, or anything out of the ordinary. Be prepared to give a good explanation.
3) Proof of your Income and Your Assets – Remember to always be honest and truthful in disclosing. Lenders are not heartless, but also are not in the business of granting charity. They will want to know about savings accounts, cash, other real estate, etc.
4) Comparative Market Analysis – In this current real estate market, one of the reasons you can’t sell your home for enough to pay off the mortgage, is that your home is currently worth less than what you owe on it. Your Realtor can do a Market Analysis for you and the Lender. It would be wise to suggest an updated CMA at least once a month, with the market shifts we are experiencing.
If and when you get an offer, your Realtor will submit it along with a copy of the listing agreement. In most cases, Lender’s will get a formal appraisal on the property before agreeing to a Short Sale. If all goes well, and the numbers add up, your Lender may approve the Short Sale. In the past, you would have been responsible for paying taxes on the difference in a Short Sale. Example: Mortgage $150,000. Short Sale for $135,000. You would have had to pay income tax on the $15,000 loss. It is my understanding that recent legislation has been passed that frees you from that obligation. With that said, please note the following:
I am not licensed as an attorney or CPA and cannot advise on those consequences. An attorney or CPA should be contacted for issues regarding legal matters and taxes.
If you would like to discuss foreclosures, short sales or any other real estate issue, please contact me. I currently have two homes listed that are in foreclosure, and both lenders are willing to consider short sales. If you need help, let me know.
