The questionable lending policies and sub prime adjustable rate mortgage mess has caused a record number of foreclosures across the country and Florida was ranked #2 in the U.S. as of October 2008. All of these foreclosures have greatly reduced the value of real estate across the country and have left many homeowners finding that they owe more on their home than it is currently worth. To complicate matters the state of the economy and the number of job losses that have been experienced has only escalated matters and left many homeowners, who were just barely making ends meet, in financial distress and facing foreclosure. If you have found yourself in this situation you may want to consider selling your home short.
What is a Short Sale?
A short sale occurs when the lender agrees to accept less than the amount owed on the mortgage and forgive the balance because the fair market value of the property is less than the amount owed. The short sale process enables the lender to avoid the foreclosure process which can be quite costly. But be aware not all lenders will agree to a short sale, and if you have a second mortgage, both lenders will have to agree to allow you to sell short. Also, most lenders will not consider a short sale if your payments are current. That is why a Realtor or a lawyer can be a tremendous help by contacting the lender's loss mitigation department to find out if they are willing to work with you in a short sale transaction.
Below is a video clip from CBS’s The Early Show. Ray Martin talks with Hannah Storm about the advantages of the short sale.
http://www.cbsnews.com/video/watch/?id=2960979n
The main question homeowners ask when considering selling short is how it will affect their credit?
Short Sale vs. Foreclosure's effect on the Seller's Credit?
Don’t be mistaken, a short sale will negatively affect your credit, but not to the degree a foreclosure or deed-in-lieu of foreclosure will.
The credit score of the seller will take a more substantial hit by going through a foreclosure or giving a deed-in-lieu of foreclosure than it will with a short sale. A short sale can result in a loss of about 75 - 175 points on the sellers FICO score. It will also be listed as ‘pre-foreclosure in redemption’ on your credit report. A foreclosure or deed-in-lieu of foreclosure can result in a loss of 200 - 300 points.
Another thing to consider is how long you the seller will have to wait before you are able to obtain a loan to purchase another home. A foreclosure may force you to wait from 3 to 7 years before you are able to purchase a home again. However, with a short sale, you should be able to obtain a loan at a reasonable rate to purchase a home in as little as18 months.
Deciding to sell your home short is not an easy decision to make and should not be taken lightly. A short sale can be a long and difficult a process and take anywhere from 2 to 4 months sometimes longer from start to finish. Though, the end result of not having a foreclosure or deed-in-lieu-of-foreclosure on your credit report will be well worth the effort. A foreclosure is much more damaging to your credit report than a short sale.
If you are successful, the difference between what you sell your home for and what you owe on the house is forgiven. You will also avoid having a foreclosure listed on your credit report. In most cases the lender will issue a form1099-C to the borrower for the forgiven debt. The borrower may owe taxes on this amount. However President Bush signed into law December 20, 2007 a bill creating a temporary tax break for homeowners who are able to persuade lenders to forgive part of their debt. For the next three years, the IRS won't count as income debt forgiven by lenders when troubled borrowers negotiate short sales or workouts on their primary residence which involves forgiveness of part of their debt.
HR 3648, the Mortgage Forgiveness Debt Relief Act of 2007. The overview and full text of this bill can be viewed using the below link:
http://www.govtrack.us/congress/bill.xpd?bill=h110-3648
To see the most commonly asked questions and related answers regarding HR 3648, the Mortgage Forgiveness Debt Relief Act of 2007 on the IRS web site click the link below:
http://www.irs.gov/individuals/article/0,,id=179414,00.html
Other helpful IRS links regarding the Mortgage Forgiveness Debt Relief Act of 2007:
http://www.irs.gov/pub/irs-pdf/p4702.pdf
http://www.irs.gov/irs/article/0,,id=179073,00.html
We advise you to consult with a tax attorney or CPA to discuss the tax implications regarding your particular situation before you decide to sell short. These professionals may charge you a fee for their services, but failing to have the right professional advise could cost you a great deal.
Realtor Commission:
Due to the large increase in foreclosures lenders are willing to negotiate the short sale of homes. They realize the benefit of selling short rather than foreclosing. It is not that the foreclosure process itself costs the lender a substantial amount. It’s the long term maintenance and care, insurance, taxes, and other costs involved with owning a home which eats up their bottom line. As your Realtor, we will provide your lender comparabale listings and sales history and negotiate to convince them they will not likely obtain a better post foreclosure offer.
Your lender realizes our professional services prevented a foreclosure and increased their bottom line while removing you from under a difficult situation. Your lender is willing to compensate us for these services and we negotiate our commission with them. Our fees come out of their proceeds and not out of your or the buyer’s pocket.
Short Sale Documentation:
Below is a list of commonly required documentation you will need to gather for a short sale package. Each lender might require different items or proof of hardship:
Hardship Letter:
The more distressing the letter the better. This letter should describe how you found yourself in your current financial situation and also makes a plea to the lender to accept less than full payment. Lenders are not inhumane and can understand if you lost your job, were hospitalize, but lenders are not particularly empathetic to situations involving dishonesty or criminal behavior.
Proof of Income and Asset:
It is best to be truthful and honest about your financial situation and disclose assets. Lenders will want to know if you have savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other real estate or anything of tangible value. Lenders are not in the charity business and often require assurance that the debtor cannot pay back any of the debt that it is forgiving.
Copies of 2 latest Bank Statements
Last two years of tax returns, W-2’s and/or 1099’s if applicable
Copies of 2 latest pay stubs
Making the Decision:
Once you have decided to sell short, give Belloise Realty Tropical a call and make an appoinment to go over your specific situation. First, we will determine if a short sale is right for you. If it is, rest assure that we will provide the professional hard work and detailed attention a short sale requires. We have completed many successful short sale transactions and have negotiated with our clients’ mortgage holders to provide the best possible result for our clients.
As experienced Realtors in short sales, we will expedite your transaction and protect your interests. You do not want to miss any important detail due to an agent who is inexperienced in short sales or find out your transaction is not going to close on time because no one has followed up in a timely manner.
Just being in an area for a long time does not make an agent experienced in short sales. Many Realtors have shrugged off short sales because of the immense amount of work involved with negotiating with lenders and the follow up time required in closing the sale.
Your lender does not delay foreclosing procedures just because you are attempting to find a buyer and sell short. This is why it is important to retain a Realtor with proven short sale experience. Your lender is not going to make it easy or hold your Realtor’s hand through a short sale transaction. You do not want to risk foreclosure with an inexperienced Realtor who might not understand all the necessary procedures, regulations, documentation, or fail to call your lender on a daily basis to pressure them into working your transaction. Your lender has thousands of short sale transactions they are working. It’s important for your Realtor to make your case the squeaky wheel.
Call Belloise Realty Tropical today and let our professional staff of short sale experts remove the stress of working with your lender. You can rest assure you are with proven short sale experts.
Chris & Beth Belloise
Belloise Realty Tropical
The Short Sale Experts
(727) 858-8692
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