RE/MAX Bay Ho, CA Short Sale Specialist! Facing Foreclosure Owe More Than Your Home Is Worth? We Can Help!

By
Real Estate Agent with Pacific Sotheby's International Realty BRÈ#01891044

Home

If you owe more than your house is worth and can't afford your payments, you might be able to sell it for less than you owe -- without having to pay the lender the difference.

 

If you can no longer make your mortgage payments and your home is now worth less than you owe on it, foreclosure may not be your only option.

A short sale, in real-estate terms, is a sale of a house in which the sale price is less than what the owner still owes on the mortgage. It is a procedure sometimes agreed to by lenders, who often would rather take a small loss than go through the lengthy and costly foreclosure process, in which the lender allows the sale of a home for less than it is worth and forgives the rest of the note.

While there are some significant negative consequences to a short sale, an ever-increasing number of properties are being advertised as short sales.

Short sale: Win-win-win situation

The beauty of short sales is that they can be a win-win-win situation for seller, buyer and lender. Here's how:

 

  • The seller gets out of the mortgage liability without facing bankruptcy.

 

  • The buyer gets the home at a reduced price.

 

  • The lender agrees to a loss it considers minimal without going through a foreclosure and being saddled with an unsalable property.

 

While it may seem surprising that lenders would agree to accept less than what they are owed, they benefit from the process, too. The lender benefits by not having to go through the protracted process of foreclosing on the borrower and then having to put the property on the market and go through the whole marketing process.

A market saturated with foreclosures can cost lenders billions -- and as much as $50,000 per foreclosure -- according to a study released earlier this year by the congressional Joint Economic Committee.

When you go into a short sale, you have an institutional lender that are most concerned with the financial situations of the seller when they ultimately make their decisions. If a seller can handle the mortgage payment, there's no motivation for the lender to let the seller out of the mortgage at a lower price.

A lot of lenders aren't even going to consider a short sale unless it seems like (the homeowner) is in financial distress.

Last gasp only

While getting a lender to agree to a short sale may seem like an answer to the prayers of homeowners who want to unload a house, it's not a good move if you're merely looking to find a new place. It's generally a last-ditch effort when the only other option is foreclosure.

 

Should you go for a short sale? It depends on how deep a financial hole you're in and how likely it is you'll be able to overcome those financial difficulties. If you're just having a short-term problem -- short-term disability or maternity leave or layoffs, but they have good prospects to find something soon and they can weather the storm and hold on to the profit through that -- obviously they wouldn't want to think about a short sale. But if the choice is foreclosure or short sale, generally a short sale is going to be a better idea.

Before you think about asking your lender to consider a short sale, it would be a good idea to get your paperwork lined up.

Be ready to document your need and to show the lender you are serious about your situation, including a hardship letter (an honest explanation of your financial situation and how it occurred), pay stubs, bank statements, tax returns, an appraisal and documentation of your debts.

3 critical safeguards

If you're considering a short sale, experts advise you to take the following steps to meet potential negative consequences head-on.

 

1. Get it in writing. Make sure the lender agrees in writing that the short sale will absolve all debts.

"If they owe $300,000 on the house and the short sale is for $280,000, is there any possible way that the lender's going to come after them for the $20,000? Most lenders will put that in the agreement that they're not going to come after the deficiency.

2. Protect your credit rating. Ask the lender how it will report the short sale on your credit report.

Most of the time, a short sale shows simply that a debt is satisfied, but theoretically, a short sale could reflect on the credit report as 'settled for less than the full balance. Such a designation is a negative mark on your credit report, though it wouldn't hurt your credit as much as a foreclosure would.

3. Get professional tax advice. Short sales often have tax repercussions since lenders can claim the forgiven debt as income that they provided you.

That means if you agreed to a short sale for $50,000 less than what you owed the lender, the lender could issue you a 1099 for $50,000, which you would have to pay taxes on. If you meet the IRS' definition of insolvency at the time the debt was forgiven, then you generally don't have to pay taxes on it.

We hope that the information we have provided for you helps give some insight on how the short sale process works. However if you are behind on your mortgage payments and are facing foreclosure we recommend you talk to an experienced foreclosure prevention specialists.

Here at The Watson Group Realty we are trained and certified (SFR) Short Sale & Foreclosure Resource Consultants that are experienced with negotiating short sale transactions. The Watson Group Realty are the PREFORECLOSURE SPECIALIST you need on your side! We understand that sometimes bad things can happen to good people.

We are a family of caring professionals working together to help you stop foreclosure and save your home. Our home foreclosure intervention offers highly experienced and effective assistance to homeowners faced with the possibility of losing their homes. By providing alternative solutions, using government and non-government programs, we can tailor a mortgage work out plan to meet your specific family needs and circumstance. Our services are free so pick up the phone and contact us today!

To Find out more on how we can help you, gives us a call at 858-272-6000 or 281-797-3841 or visit one of our sites below.

STOP FORECLOSURE!

 

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