Short Sale Success Tips When the outstanding loans against a property can elevate higher than the amount that the property can be sold for a short sale can take place. They are a process for homeowners by which they can avoid foreclosure and still enable them to pay off their loan if they can settle accordingly with lender. The first step in doing a short sale is to verify the proper value of your asset. Your real estate broker can give you an estimate of market value for your property. It is also a good idea to do some market analysis on your own.
Next you will need to find the exact costs of selling the house. The real estate broker you hire can give you a valid estimate about closing costs. In case you decide to sell the property by yourself, you can consider calling a real estate attorney and ask directly what the closing costs are going to be. Calculate amount owed on behalf of the house.
You should then contact the lender to discuss this deal. Tell the situation to someone in the customer service department and discuss the situation. Ask them to direct you to the concerned department. You should make sure you get to talk to someone who has more authority like a manager or supervisor. Find out from the lender about what their measures are for a short sale. Some lenders can reduce the amount owed or make other arrangements, and work with you on this. Some will also be able to look into agents or anyone else involved who might be making money off the transaction and perhaps negotiates concessions to make the transaction more feasible. Closing costs can also include escrow and title fees if the seller is accountable for any fraction of them. This will pretty much depend on your attorney fees, re-conveyance fees, county, delivery fees, portion of unpaid property taxes, notary fees and even any documentary and transfer fees. Decide whether or not you need to sell the house without the backing of a real estate broker, this way you can save the money on their commission and save some money to apply to paying off your debt. But having a real estate broker handle the transaction can be incredibly relaxing. Consider using a discount broker who can help market your asset. Negotiating sales commission with your broker can also reap benefits. The amount on your monthly debt statement does not take account of interest. Interest is accumulated till the loan has been paid off. This means that added to the balance owing, you may have as high as up to thirty days of interest, this needs to be included in the total payoff amount.
For properties sold under short sales, the buyer may be required to make up for the deficiency or difference whether due to a collection or a personal responsibility. IRS gets involved with short sales often, as they are perceived as a reprieve of loan and hence treated as income. This is why you have to very careful as you go about the short sale process.
Definition - A short sale is when the financial commitments on a property are bigger than the market value of the property as measured by the direct market comparables.
Many Temecula agents and buyers mix up short sales with foreclosures but they are actually very different. Foreclosures are when loan payments are not being made and consequently the bank sends out a Notice of Default. That notice begins the financial institute’s case building for a foreclosure procedure. Foreclosures usually take roughly 4-6 months with the current owner losing possession and taking a critical credit hit.
However, this situation can often be worked out in that 4-6 month time period. This is the reason there has been uncertainity unraveling a short sale versus a foreclosure since they are frequently intertwined. Once a bank has begin a foreclosure procedure, the current homeowner has a limited time to either bring the debt current or abandon the home.
The other choice is a short sale pending the bank’s authorization and thereby debt forgiveness. By doing a short sale, the seller lists the Temecula or Murrieta property, makes an agreement with the bank or banks and sells the house before the the bank fully processes the foreclosure action. The deal the homeowner commits to is for the lending institute to take a smaller amount than is owed on the property but give full debt forgiveness for the homeseller.
You may wonder why would a bank be willing to accept a lower amount? Because, the bank is likely to get even less in the event of a full foreclosure. The banks usually get more via a short sale because the homeseller is keeping up the Murrieta or Temecula home and it sells for a higher price. The bank also sidesteps the expensive foreclosure process while being concerned about one less losing investment in its portfolio. Banks have difficulty monitoring all their foreclosures. And, foreclosed homes often get damaged and vandalized costing the lending company even more money.
So in quite a few situations the short sale a solution that works out for the current owner of the home who gets debt forgiveness in the place of a foreclosure and the bank who saves time and money. It also usually works for the new home buyer as well because they get a home that is in nice shape usually at or under foreclosure pricing.
It isn’t always a walk in the park though and there are two issues to short sales. The first hurdle is time. Lending companies often take a long time to submitting for and getting investor approval and many times buyers do not like to wait. As an broker, it is much easier for me to sell a banked owned home or a traditional seller owned home over a short sale.
The second worry is potential tax liability. In the event a lending institute authorizes debt forgiveness it is supposed to report that loan forgiveness as income via IRS form 1099. What many of people do not check into is the reality of their taxes.
Many homesellers are classified as financially destitute and are thereby absolved of these tax burdens. Homesellers in this circumstance should have a tax professional examine their net worth utilizing the tax form and just might be pleasantly surprised.
In closing, there is some good news on the horizon. The House of Representatives just happily passed a new bill to minimize the IRS negatives on bank forgiven debt. This action further augments the benefits of a short sale over a foreclosure and seriously reducing the long term financial shock for people caught in what has become a very normal situation.
Both Susie Kay & Stefan West are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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