A Short Sale is simply where your mortgage lender accepts less than what you owe on your home. If you are upside down and need to sell due to a hardship, you may qualify to short sell your home. Mortgage Lenders accept Short Sales because it makes more sense and costs them less money than taking the home back as a foreclosure.
Most importantly, it relieves the stress of foreclosure and being harassed by the mortgage lender; and it frees you of a big mortgage payment so you can move on. A short sale allows you to stop the foreclosure process and have a new beginning. Also, if you have late payments, and no longer can afford your mortgage, it will stop additional damage to your credit. During the process, late payments and a foreclosure filings will negatively affect your credit. A foreclosure or bankruptcy will be extensively more damaging at lowering your credit score. Since with a short sale, the mortgage is actually settled, it is much more positively reflected when compared to a bank foreclosure or bankruptcy. In a distressed situation, you have a possible solution and nothing to lose in attempting to do a short sale.
Current estimate is -50 points. Lets’ make one point clear: The only reason the seller’s credit is currently damaged is because of the non-payment of their mortgage. Each individual lender will decide what to report. Often it will note loan as “paid” on their credit report, while in the footnote it may reference “settled for less than amount owed”. Although it is a mark on the credit report, it is more favorable than “foreclosed” which is currently about -250 points.
Only the individual listed on the NOTE is responsible for the current mortgage and any liability resulting from the Short Sale.
A common myth with Short Sales is that you must be delinquent in order to start a Short Sale process. You do not need to be behind in payments but the bank will need to see that you have a hardship. A hardship can be a loss of a job, divorce, a catastrophic medical event, job relocation, imminent default or a death in the family. Even if your hardship is not mentioned, you may still qualify for a Short Sale.
We can work with both mortgage lenders (many times the same mortgage lender holds the 1st and 2nd mortgage loan) to put together a Short Sale transaction. Even if the value of the home is below the balance of the 1st mortgage, the mortgage lenders are willing to work together to come to a common solution.
If it is your primary residence – No. Congress passed a law entitled The Mortgage Forgiveness Relief Act of 2007 to eliminate this tax on ALL PRIMARY residences. If the Short Sale is occurring from a 2nd home or investment property you may receive a 1099 from the lender. It is required by the lender to submit the formal tax form, but these circumstances are individual to each lender and in most cases rarely do this happen. In any case it is always a good idea to consult with your accountant.
It has been our experience to advise our clients NOT to file bankruptcy due to future financial progress and destruction to their credibility. Bankruptcy will absolutely stop a foreclosure. However in most bankruptcy scenarios a repayment plan is worked out with all creditors participating in bankruptcy plus attorney fees, therefore resulting in a monthly payment. The second you’re in default on your bankruptcy payment your mortgage debt will be discharged. Now you’re back at square one facing foreclosure. Most importantly you have a bankruptcy on your credit & have the possibility of going to foreclosure. Which will hinder your chances of purchasing a home for 7-10 years. A successful short sale will get you relieved from the mortgage debt free and clear with the possibility of getting relocation assistance. Lastly, have the ability to purchase a home within 18-24 months.
If you continue to pay your bills and have a good payment history, It would be recommend applying for a mortgage loan within 18-24 months of the Short Sale transaction. Keep in mind, your debt to income ratio must be in compliance with the mortgage lending guidelines.
The lender will pay all of your closing cost except the following: excessive delinquent HOA dues, recording fees , courier fees, loss mitigation/ 3rd party negotiation fees and any government liens (IRS income tax/child support lien).
