There are some instances in life wherein it would be best to cut your losses and run. If the loss is your home, it is likely that the decision to do this is understandably made almost too late. If you’re in the unenviable position of having to sell up and downsize because of escalating costs, an efficient real estate agent could be your best friend. If your home is now worth less than you owe on it, he/she will be familiar with procedures and would be capable of guiding you through the differing aspects of negotiating a short sale. The Phrase ‘short sale’ actually means that is the present value of the house is less than the figure that you owe on it.
Unfortunately, because of past financial practices which have largely been rectified by now, many thousands of home owners find themselves in this untenable situation. 3 quarters of well-known housing markets in USA have suffered ongoing price decreases. All these figures are released by Global Insight, who quote that single family house prices have dropped for the 3rd consecutive period in 262 out of 330 markets. When the mortgage costs increase in the same time frame which housing values decrease and world food and gas prices increase, it makes it impossible to live on the initially planned budget. If the only answer is to sell your home, you need to be aware that a short sale is different to selling your home under normal conditions.
Most of the time, only after the lawyer pays off the mortgage would the lender come to know that your home is on the market. However, with a short sale, the lender must be in on it from the beginning. There’s even more paperwork for you to take care of with a short sale. For example, you need to give permission, in writing, for the lender/bank to communicate with your real estate agent. An even more complex job is to document all the reasons why you can’t pay the amount that you owe. Which is known as ‘proving hardship’ and attached to your letter of explanation would be bank statements, credit card bills, W-2s and any other proofs of inability to pay.
This hardship statement doesn’t absolve a home owner from the responsibility for the debt owing – but it may. The attorney or title company that will be taking care of the paperwork for you can make the approach to your lender for ‘forgiveness’. Lenders don’t wish to accumulate a mass of homes; they are in the cash business. If the short sale route is accepted by your lender, it will save him time and cash over the other alternative he has: a foreclosure on the loan. The most time consumed for the lenders are with the Foreclosures that are quite expensive; too many foreclosures on the books could also jeopardize the lender’s future loans from being insured. In short: a lender will prefer a short sale and if you are co-operating by providing one – what’s in it for you?
A short sale may still affect your credit rating, but if you could come out of it with the debt cleared (or ‘forgiven’), you can have a fresh start. If your lender ‘forgives’ you then a 1099 must be issued so that the amount of the excused debt is documented for you, the seller, to declare to the IRS at tax time. All liens on the home has to be released before it can be sold; this includes the lender’s lien. If you could work to keep your lender’s good will, or at least co-operation, a transaction may run more smoothly. As in most walks of life, compromise and patience are even invaluable commodities in short sales.
Our products are built for small businesses and individuals who want to take their Real Estate or Shortsales Businesses further. Through powerful educational tools and automation we hope to help you make your businesses grow. Visit http://www.shortsaleology.com and know more about shortsales, foreclosures and short selling.
