What is a Short Sale?
The following is an article from the Department of Real Estate regarding Short Sales.
** CONSUMER ALERT **
WARNING REGARDING RESIDENTIAL "SHORT" SALES
If you find yourself in a situation where your financial circumstances either challenge your ability to make your home mortgage payments or you are no longer able to make the mortgage payments at all, you will be presented with a series of difficult options that will have an impact on your personal and financial life for years to come.
One of the more familiar options is foreclosure. In a foreclosure, the bank/lender (owner of your loan) decides to sell your house as a means to get back the money they loaned you. However, in this current real estate market, some banks/lenders are not exercising their foreclosure rights and instead have opted for either "loan modifications" or "short-sale" deals. Since it appears that successful loan modifications have not been very prevalent, this alert is written to discuss another option that is currently available to the banks/lenders: short sale transactions.
Short Sale Transactions:
What is a short sale? To put it simply, a short sale transaction is a sale of a property in which the outstanding debt (in the form of mortgages – such as purchase loans, refinance loans, home-equity loans, or one of the various other types of loans secured by your property) was more than the price for which the property was sold. Example: 1st and 2nd mortgages totaled $470,000.00 and the property was sold for $325,000.00. The sale price was $145,000.00 "short" of the amount that the seller had originally borrowed – thus the term "short sale." Since the banks/lenders were essentially paid back less than what you borrowed, you could be deemed to have received a debt "forgiveness" of $145,000.00. A sale of this type requires bank/lender approval.
While there are many reasons why a bank/lender would choose this manner of sale, the important question is: What should you (as the seller of the property) know about this type of sale? If you participate in this type of sale, please be aware that:
1. In some instances, you may be sued by the lender/bank for the money that was "forgiven".
2. The amount you did not pay back, which is a form of "debt forgiveness", may be taxed by tax agencies for the "forgiven" amount. In the example above, you may be taxed on $145,000.00. For Mortgage Forgiveness Debt Relief Act and Debt Cancellation tax information visit: http://www.irs.gov/individuals/article/0,,id=179414,00.html
3. If there are other lenders or lien holders (such as a 2nd or 3rd loan), the holders of the second or subordinate liens, may file a deficiency judgment in civil court against you to get their money back, even though the first lien holder allowed debt forgiveness.
These are just three major consequences of choosing to sell through a short sale. Therefore, it is very important that you seek:
1. A licensed and qualified real estate agent to represent you in these types of transactions. To determine if the person is licensed by the California State Department of Real Estate and/or to check on a license status, please visit our website at www.dre.ca.gov.
2. The advice of an accountant. To obtain the status of a Certified Public Accountant or a Public Accountant, please visit the California Department of Consumer Affairs - California Board of Accountancy at www.dca.ca.gov.
3. The advice of a lawyer. To obtain the status of an attorney, please visit the State Bar of California at www.calbar.gov.
In addition, contact a free United States Department of Housing and Urban Development (HUD)-approved housing counselor at www.hud.gov or contact your lender directly.
In April of 2010, the federal government will offer financial incentives to push short sales through a program called Home Affordable Foreclosure Alternatives. The program is designed to spur home sales and one of its components will be providing government payments to homeowners (for moving and/or relocation expenses). For more information, please visit www.makinghomeaffordable.gov.
Be aware that in response to this new program there may be an increase in the number of companies soliciting homeowners in distressed situations and offering to conduct the short sale negotiations with your bank/lender in exchange for charges and fees. Their interest may not so much be to help you as it may be to try to be the vehicle through which they could "flip" the short sale for a profit.
(The complete article is available to the public at www.dre.ca.gov ). For the complete article in pdf, contact me.
Don't fall victim to Loan Fraud or unscrupulos companies, please contact me, for more information on Short Sales. If you need to list a short sale or are interested in buying a short sale; I am here to serve you.
