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A Brief Guide To Short Sales
by Lisa Lloyd
Nearly once a week I meet with homeowners who need to sell their home, but owe more than their house is currently worth. They are faced with the difficult decision to either stay put or come up with the additional money to get the house sold.
Some people don’t have a choice. They are faced with a job transfer, job loss, divorce, death in the family or some other serious circumstance. They might even be in danger of getting behind on the mortgage payment. They may feel that foreclosure and bankruptcy are the only solutions. Sometimes those things might actually be the answer.
But not always.
Many people have never heard of the mortgage lender “short sale”. A short sale occurs when a mortgage holder (i.e. the bank) agrees to accept less than what is owed on a mortgage when a house is sold by the owner. The bank takes the proceeds of the sale (less fees) and discharges the balance of the mortgage. The bank is then required to report this forgiven debt to the I.R.S. as taxable income and you will receive a Form-1099 in January of the following year.
In most cases you’ll need to meet the following conditions for the bank to consider your request for a short sale:
- A purchase agreement with a bona fide buyer.
- A certified appraisal on the property.
- Documentation of your hardship.
- Delinquency status on your mortgage payments.
Yes, your credit history will show that the short sale occurred, but it’s less severe than showing that a foreclosure occurred.
Below are some additional resources regarding short sales that I believe you’ll find beneficial:
From CNNMoney.com:
money.cnn.com/2007/08/03/real_estate/kinder_gentler_lenders/index.htm
From CBSnews.com:
cbsnews.com/stories/2007/06/21/earlyshow/contributors/raymartin/main2961274.shtml
From Businessweek.com:
businessweek.com/the_thread/hotproperty/archives/2007/03/the_new_exit_st.html
From CNNMoney.com:
money.cnn.com/2006/12/07/pf/saving/toptips/index.htm
If you conclude that this is an option you need to explore, where do you begin? First, contact an experienced realtor—not just the guy on your bowling team that sells real estate part time. Talk to a realtor experienced in working with banks. Have that person do a proper market analysis on the house. Price it right, get it on the market, get an offer then let your realtor help you in your negotiations with your mortgage holder.
As always, if you need tax or legal advice please consult with a competent attorney or tax professional.
I hope you found this brief article helpful. Remember, if you find yourself in a difficult financial predicament, don’t be afraid (or too proud) to ask for help. That’s why we’re here.
About the Author
Lisa Lloyd, M.B.A. is a licensed Realtor with The Michigan Group in Brighton, Michigan. She specializes in residential sales, leases and works with investors. As the real estate market is ever-changing, Lisa is an expert at crafting individual solutions for her clients. She can be reached at lisalloyd@charter.net or lisa-lloyd.com.
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