As most people are well aware by now there are many short sale and foreclosure listings in our market. I am always being asked the question "what's a short sale".
Basically, a short sale is where one owes more money to a lender than the amount the home will sell for. For example; say you have a mortgage for $200,000 and you have an offer for purchase at $180,000, this would be a short sale of $20,000, you would owe your lender $20,000. If you have more than one loan on the home, then the first position lender will be paid first and the second position lender next, and so on. Other factors which need to be added are taxes, homeowner and condo fees, Realtor® fees etc, as part of the sale.
At the time of writing, you would be given a 1099 and Uncle Sam would also want you to pay taxes on the amount of the shortfall - this however, is about to change and we will have to wait to see what transpires in 2008 in this regard. However, please consult a qualified CPA to discuss fully the repercussions of a short sale and the effect it might have on your taxes and credit.
When there is a short sale, some lenders will give you a new loan for the "short" amount and you will pay this back over an agreed time period. Each lender has different guidelines. The position may also be changed if you own more than one property and the short sale is not on your primary home.
Things to consider when selling your home
When you need to list your home for sale and you believe it will be a short sale, then you need to speak to a Realtor® who knows and understands the process. He/she will be able to walk you through the process and advise on market activity, pricing etc in your neighborhood. When listing the home there are many factors which need to be considered and the correct advice and documentation is crucial. Please call a short sale/foreclosure specialist if you feel that you may be in a short sale position. There are no stupid questions and we are always happy to give advice and support.
If you are in difficulty making payments on your loan, please speak to your lender to let them know that you are have trouble making payments. Do not wait until you can't make a payment before contacting your lender!
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