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626 296-2900 |
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SHORT SALE HELP REQUEST |
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What is a short sale? |
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A short sale is a sales transaction in which the seller's mortgage lender agrees to accept a payoff of less than the balance due on the loan, according to the California Association of REALTORSA short sale may or may not involve a property in foreclosure. |
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The Impact of Short Sales / Foreclosures on Credit Reports |
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Sellers may wonder whether letting a property go into foreclosure would be easier and smarter than going through a short sale. With a foreclosure, and depending on state laws regarding foreclosure, a seller could stay in the property, essentially rent free, for four months to a year before being forced to vacate. But that fact alone does not mean a foreclosure is better.
Whereas a short sale involves offering the home for sale, generally listed through MLS. Potential home buyers will make appointments to view the home, some will make lowball offers, agents might hold open houses and, in general, a seller's life will be disrupted, all in the hopes that a buyer will buy the home and the home won't be foreclosed. |
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- From the lender’s perspective, a short sale saves many of the costs associated with the foreclosure process - attorney fee's, the eviction process, delays from borrower bankruptcy, damage to the property, costs associated with resale, etc. In a short sale scenario, the lender gets the property back faster, so it is able to cut its losses.
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The Manzo Team
PASADENA CA REAL ESTATE SERVICES
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626 296-2900 |
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Basically, the definition of the short sale process is when the lender of a property allows the property to be sold for less than the amount due on the mortgage loan.
The obvious benefit to the short sale process is that it allows the seller to avoid the credit report damage associated with a foreclosure. A foreclosure can stay on your credit report for up to 10 years and can take an emotional and financial toll on you and your family.
But the pitfalls of the short sale process should be considered as well. The I.R.S. may consider any debt forgiveness as taxable income, thus resulting in a tax liability. In addition, lenders can often pursue a borrower for the deficiency balance (the difference between the amount owed and the amount paid).
In some cases you may be able to avoid taxation if you can prove you are insolvent. But if insolvency is unsuccessful, and you are faced with a tax liability resulting from the deficiency amount, it may make more financial sense for you to let the lender foreclose.
The short sale process can vary, but it will generally work as follows:
- The lender is contacted to discuss the possibility of a short sale and to determine the lender’s process for completing the sale.
- The seller issues a letter authorizing the release of personal information about the loan and the property to the buyer or escrow agency.
- The lender will review a settlement statement, which will indicate the proposed selling price, remaining loan balances and itemize all expenses, including real estate commissions and other fees and expenses associated with the closing.
- The seller will complete a hardship letter, which will detail and explain all financial difficulties. Lenders will usually want to validate the seller’s financial situation by looking at bank statements, investment accounts, along with examining paystubs and other financial records.
- The lender will then look to the broker to provide a price opinion by examining the condition of the house and the market value of comparable properties.
- The lender will then want to scrutinize the purchase agreement to determine if all amounts are reasonable and the real estate commission is acceptable.
Because of the documentation required, the short sale process can be lengthy. But if done correctly, it can work well for all parties involved. The lender avoids the uncertainty of the foreclosure process, the seller avoids a foreclosure on his or her credit report (along with potential bankruptcy), and the buyer hopefully got a good deal on a property.
The lender will likely require additional information, which we will collect from you, and review before submitting it to the lender. Some lenders are requiring that the principals pay 1 month income as their contribution to complete the sale. It is very important that you not discuss anything with the lender from here forward. Should you or your client be contacted by one or more of the lien holders, please inform them that The Manzo Team will be handling all negotiations, and that you would prefer they not contact you any further.
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| SHORT SALE HELP REQUEST |
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| VIEW SHORT SALE LISTINGS |
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