A Quick Reference Guide For the Short Sale Process:
What is a Short Sale?
A short sale occurs when a property is sold for less than what is owed. The lender holding the mortgage agrees to take less than the mortgage payoff amount. Many folks are finding themselves in a situation whereby they are unable to afford their mortgage payments. In this instance, a short sale may be a good alternative to a foreclosure. Reasons why people choose a Short Sale:- Can be less damaging to one’s credit than a foreclosure.
- Stops collection calls from the mortgage company.
- Can save the embarrassment of having a sheriff sign on the property
- No foreclosure notice printed in the newspaper.
- Although a short sale may take two to three months or more, it is typically much quicker than a foreclosure.
- Being pro-active in resolving the matter is usually much less stressful than just letting a foreclosure happen.
At our appointment, please bring with you the following items:
- A hand written hardship letter, (not typed), explaining how your situation came about and why you still haven’t been able to bring your mortgage payments current.
- Current pay stubs for one month; or a statement from you explaining that you are unemployed or a reason why no pay stubs are available.
- Last two years of tax returns; if no taxes were filed, then last two years of W2’s.
- Last two months of bank statements
- Make a thorough list off any and all expenses that you have on a regular basis. From the mortgage payments, credit card bills, and car payments, to utilities, groceries, medical/life insurance, prescription co-pays, pet care, gas and auto maintenance, etc.
- Authorization to Release Information (use the form we provide).
- Financial Statement (use the form we provide and fill it out to the best of your knowledge).
- New Short Sale Submission Form (use the form we provide and fill it out to the best of your knowledge).
When we receive the above documents, we can start your short sale procedure. Your Loss Mitigation Specialist and Short-Sale Knowledgeable Realtor together will:
- Create the photo tour of the property
- Prepare the lender-required listing paperwork
- Prepare a Broker’s Price Opinion (Market Analysis)
- Work with the buyer to obtain a Purchase Agreement
- Obtain contractor’s repair estimates, if necessary
- Package all documentation together to submit to lender to get short sale approval
Frequently Asked Questions:
- Question:
- I have been told that if I sell my house for less than what is owed, my mortgage company will issue me a 1099 for the difference, and I will have to pay taxes on that. Is that true?
- Answer:
- In 2007, President George W. Bush issued the Taxpayers Debt Relief Act, which states that the homeowner will NOT owe the IRS taxes from a short sale 1099, (You will still receive the 1099 but with no federal tax implications.) This act is in effect until December 2012 and will most likely be extended again. Therefore, at this time, there is NO federal tax liability associated with a short sale.
To obtain information regarding any state or local tax responsibility, please consult an accountant or visit www.irs.gov.
- In 2007, President George W. Bush issued the Taxpayers Debt Relief Act, which states that the homeowner will NOT owe the IRS taxes from a short sale 1099, (You will still receive the 1099 but with no federal tax implications.) This act is in effect until December 2012 and will most likely be extended again. Therefore, at this time, there is NO federal tax liability associated with a short sale.
- Question:
- Will I be responsible for paying the difference back to my mortgage company? (Will my mortgage company issue a deficiency judgment?)
- Answer:
- Some mortgage companies will issue a deficiency judgment and expect the homeowner to pay back any amount that is owed to them after the sale; however, the amount is usually substantially less than the deficiency judgment that would be filed as a result of a foreclosure. It pays to do a short sale instead.
For legal advice on possible obligations after a short sale or foreclosure, please consult an attorney.
In 2009, the Treasury Department introduced the HAFA program to provide a viable option for homeowners who are unable to keep their homes through the existing Home Affordable Modification Program (HAMP).
Qualified homeowners may receive an additional $3,000 at closing to be used for moving expenses, and will be released from future liability on their 1st mortgage debt.
Don’t let a foreclosure possibly prevent you from buying another home for the next 7-10 years. Please contact me for more information on the benefits of selling your home through a short sale and avoid the foreclosure!
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