What is a short sale

The Short Sale or Shorted Sale

A short sale or some times called a shorted sale is when the lender agrees to accept a discounted payoff when a property is sold. A short sale is dependent on two major things. One, a buyer making an offer to purchase and two, your lender accepting a buyer's offer that is less or short of what you owe. If the lender cannot or will not accept the offer, the short sale will not take place.

Short Sale vs. Foreclosure

There are many ways to lose a home and none of them will put a smile on your face. The signing away of ownership in a manner that destroys credit, embarrasses the family and strips an owner of dignity such as with a foreclosure, is always hard on the whole family and is in many cases unnecessary. For owners who can no longer afford to keep mortgage payments current and can't sell the home for what they owe to the bank, there are alternatives to foreclosure, like the short sale. Sometimes, to avoid going through the costs of foreclosure, a lender will agree to a short sale and takes less for the home than the mortgage balance while the home is in this pre-foreclosure stage.

Short Sale Consequences

This is not a get out of your mortgage free card there are consequences. A short sale will show up on your credit report as a pre-foreclosure that has been redeemed, if in fact your bank has already issued a foreclosure notice. In this case there will be damage to your credit report, however, it is significantly less then a full foreclosure and you should be able to obtain another mortgage with a reasonable interest rate in approximately half the time as with that full foreclosure. And there is good news, President George W. Bush signed legislation into law on Thursday 12-20-07 that will ease the tax burden for home owners who have had debt forgiven on a mortgage due to a foreclosure, short sale, or deed in lieu of foreclosure. The tax code used to require a lender who forgives debt to provide a Form 1099 to the IRS stating the amount the borrower had been forgiven. If the property was sold at foreclosure or was sold for less than what was borrowed, that difference was considered income and subjected to income tax. But now as long as the property is your primary residence you will not be subjected to the Form 1099.

If you are thinking that a short sale is an option that you would consider or if you feel that a short sale is the only way for you escape a full foreclosure and want to find out how to engage this process call, text or email me right away. With a short sale time is not on your side. Below is basic guide to the short sale process and a list of what to do and what you can expect.

1. Answer the following questions:

a. Has the real estate market values dropped in your area?

b. Is your mortgage in default (not current on your monthly payments)?

c. Has your family and/or you fallen on hard times (i.e. unemployment, divorce, medical issues, bankruptcy or death in the family)?

d. Is it impossible for your assets to pay the difference between market value and mortgage balance?

2. Find a good, honest and hard working Realtor with a team of professionals that can help you through the short sale process. If you have answered yes to all four questions you may qualify for a short sale. Your Realtor should put you in contact with the financial professional on their team to discuss lender short sale qualifications and precautions. If you have answered no to any of the four questions then talk with your Realtor and ask for further assistance on selling your home.

3. When or shortly before the lender has agreed to look at a Short Sale Purchase Agreement, your home will be listed with the Realtor of your choice with notification in all advertisement that the home sale is subject to the lender's approval of the short sale.

4. The home is marketed at a price lower then the mortgage balancepriced at fair market value, determined by a real estate professional and a buyer makes an offer on your home.

5. If this offer, that can by countered and/or rejected by the home owner, is accepted by the home owner then it is taken to the lender by the Realtor and his team of professionals for intense and sometime lengthy negotiations that will hopefully end in an approval.

6. If the short sale is approved by the lender then the transaction closes when the buyer delivers the funds, the lender releases the lien and the seller delivers the deed just like a normal sale. The transaction is complete with you having fought back against the hardships you are facing and won a little bit back for yourself.

* Changes may have occurred after the last update to this document that could affect the short sale process, please contact Jeff Davis at 810-441-5777 if you have any questions.