QUALIFYING FOR A SHORT SALE
If the value of your home is less than the amount of your outstanding loans against it, a short sale is an option. However, the process is complicated and lenders are under no obligation to accept a short sale. You are selling your case to the lender. What does it take for a lender to believe you qualify for a short sale?
- You don't qualify for MHA Refinancing or Loan Modification Program
- Your home's market value has dropped
- You've fallen on hard times
- No available assets
WHAT'S YOUR PROPERTY'S VALUE?
I can provide a Comparative Market Analysis (CMA), which gives an idea of what the home might sell for. I can also provide a Broker’s Price Opinion (BPO), containing comparable sales of similar houses in the area to provide further proof of the market value of the home.
In addition, you need to determine the amount owed against the property. Include all outstanding loans and taxes. Compare this amount to the value of the property stated in the CMA and BPO. If the home’s value is significantly less than the debt tied to the property, a short sale is an option.
CONTACT THE LENDER
If more than one lender is involved, contact the second lender as well. Talk to a supervisor or manager, whoever has the authority to make short sale decisions. Explain the situation to the lender and ask for their specific procedures for completing a short sale.
Lenders are under no obligation to accept a short sale, but it’s sometimes in their best interest to do so because the foreclosure process is even more lengthy and expensive. Some lenders won’t accept short sales until after a few missed payments, so consider the credit consequences of missing multiple mortgage payments.
FINDING A BUYER FOR YOUR SHORT SALE
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TAX & CREDIT IMPLICATIONS OF A SHORT SALE
Although a short sale can provide distressed homeowners with a helping hand towards solving financial hardship, don’t expect a short sale to solve all financial problems.
Short sales can have tax and credit implications. Before you considering a short sale, speak with a certified public accountant or a tax attorney to determine what your financial obligations will be after the sale. There are a few different situations that you need to be aware of before going through with a short sale.
If you are forgiven a significant amount by your lender, the IRS may consider it debt relief income, and you'll be expected to pay taxes on that amount.
Also, your lender may require you to sign a promissory note agreeing to pay back the amount of your loan not paid off by the short sale. The lender may not allow a short sale unless a note for the full amount is signed by the borrower or the “right to pursue a deficiency” is outlined in a statement signed by you.
While a short sale will not be as damaging to your credit as foreclosure or bankruptcy, you still need to be prepared for a negative impact. How much damage a short sale will do depends on how the lender reports the deal and also the information already contained in your credit report.
While these will be negative marks on your credit report, it is possible to get them off your report in a few years. Remember, all of these options are better than a foreclosure.