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Posts Tagged ‘Real Estate Short Sale?’

Hopefully you will not find yourself needing this information on real estate short sales however if you do this article will be helpful.

What exactly is a short sale?

It is an option given to homeowners allowing them to sell their property for less than they owe on their mortgage loan. A short sale is often used as an alternative to a foreclosure, which mitigates additional fees and costs typical with foreclosures to both the creditor and borrower.

In a declining real estate market a homeowner can be upside down in his or her property, meaning that the debt on the property exceeds the current market value.

The actual process can take many months to complete and there is no guarantee that lender will ultimately agree to the short sale.

In order to qualify for a short sale, the homeowner must demonstrate financial hardship.

If you find yourself considering a short sale, create a hardship letter to be sent to the lender and that letter should be no more than one page. Do not blame the lender in your letter as the reason for the hardship even though you might feel there is cause. State your reasons being factual and truthful. Common valid hardship reasons are the following though not exclusive:

Loss of Job
Illness
Divorce
Relocation

Ask the lender for their help based on your specific hardship.

When negotiating with your lender, you can require that the bank waive its right to a deficiency judgment otherwise you could be held liable for any outstanding balance after the house is actually sold.

Credit Implications- Bad news is the fact that your credit history will reflect your sale of your home and remain on your credit history for seven years. This likely will affect your ability to apply for credit for several years including purchasing another home.

After you have completed the short sale, request a free credit report from Annual Credit Report’s website. You are entitled to a free report from each of the three major reporting agencies. It is recommended that you request your reports from each of the three agencies one at a time in other words one report every four months.

Tax Considerations – A short sale in which a portion of the debt is forgiven is considered a relief of debt and may be treated as income for tax purposes. This will result in the lender issuing a tax form 1099 C known as cancellation of debt.

Check with a tax adviser to review current tax rules dealing with the cancellation of debt rules as Congress passed new regulations concerning a homeowner’s residence in the case of foreclosures and short sales.

There was an exception rule that allow a taxpayer to escape the additional taxes, however that expired in 2010. The exception might be or has been reinstated so do discuss this tax issue with a tax professional.

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