Recent research estimates that as many as 20 Million homeowners are in default on their mortgages and/or facing foreclosure.
What most don’t realize is that there may be a way to prevent an actual foreclosure. It’s called a short sale. You are a candidate for a short sale when you can no longer afford to pay your monthly payments.
By following a specific process, with the help of a licensed real estate agent, and a professional 3rd party qualified negotiator, the lender allows you to be released from your loan, forgiving or cancelling the balance you owe them.
Why would a lender accept a short sale?
A short sale has a far greater return on investment to the lender than a foreclosure. The average savings a lender might see from a short sale vs. a foreclosure is $14,000. They are able to cash out of the loan faster than through the foreclosure process. Plus they do not have the legal fees that are normally attached to a foreclosure. Plus, there’s now additional incentive as part of the Stimulus Package.
As a homeowner, why would I choose to pursue a short sale?
Let’s face the sad unfortunate truth. Bad things can happen to good people. There are many reasons why homeowners find themselves in a position of default…change in mortgage payments, loss of job, divorce, health issues, etc. When you get behind on your mortgage payments, and are not able to get current, and stay current, your lender will start the foreclosure process, no exceptions.
If the foreclosure takes place, you’ll ruin your credit for 5-10 years. You can expect your credit score to go down by as much as 250 points, making it impossible to make any future purchases using credit for at least 5 years. A foreclosure is always a required disclosure you must make on any credit or job application. Depending on your circumstances when you forclose, the lender may also file a deficiency judgment against you.
A deficiency judgment can arise if the lender sells your home at auction for less than the mortgage debt. The lender may hold you responsible for the unpaid portion of the loan. A short sale gets listed on your credit report as settled debt, and is much less harmful to your credit. You can expect a decrease in your credit score of approximately 30-75 points vs. 250 points. The loan is forgiven, and no deficiency judgment will be placed against you, assuming you have the right team on your side.
Is it true I will be given a 1099-C by the IRS, and will owe taxes on the unpaid loan amount?
This really has been of major concern for homeowners who choose to do a short sale. Previously, the IRS had the ability to consider the forgiven loan amount as earned income, and you could be taxed on that income. However, H.R.3648 was passed in 2007 and virtually removes the phantom income tax that previously haunted distressed homeowners. Please be sure to contact your accountant or attorney for further information on how this affects you specifically.
Who should handle our short sale?
The most important factor to consider when deciding to work out a short sale with your lender is to use a qualified professional to handle the process and negotiations. If your agent and processor are not experienced in the short sale process, no kidding, the deal can be over before it begins.
A professional real estate professional will need to list your home on the market as the first step. Be sure the agent you hire has experience working with short sales or experience working with a qualified negotiator. The best scenario is to let the real estate agent handle the marketing of your home, and allow the qualified negotiator to handle the short sale. That is what they are trained in, when most agents are not.
What exactly is the short sale process?
When we meet, I will explain the process and review with you how to prepare your hardship package. I know upfront exactly what the lender will require from you when submitting your offer. This way, I will be prepared fully to negotiate on your behalf. Your home is listed by an experienced short sale real estate agent, who prices the home according to input from the qualified negotiator. Remember, the goal is to bring in a quick offer and to prevent you from going into foreclosure. Once an offer is received, an entire package is presented to the lender, and the negotiations begin.
Will the lender always accept a short sale offer?
Unfortunately, no. There are some lenders that will opt to continue forward with foreclosure. However, our experience is showing that lenders are becoming more and more willing to accept the offers we present. Additionally, I have made a strategic decision to partner with the most successful qualified negotiator in the country, BGS3. BGS3 has an 85% success rate of closing short sales with no deficiency judgement! Typical agents average a 20% success rate.
What does it cost me to do a short sale?
Absolutely nothing. In the event that the short sale is accepted, the lender will pay the real estate commission, closing costs, and processing fees.
