The Goodspeed Group is very active in the Selling process, whether it may be a short sale, a conventional sale, or probate sale. Please feel free to call 760-245-4100 for more information, and one of our Realtors can help you with the process.
The most important issue with the Sellers and their Short Sale, is the Seller must consult with their Accountant for tax advice and their Attorney for legal Advice. Real Estate Agents cannot advise Sellers on Tax issues or give legal advice. Every situation is different and must be treated individually. Realtors can help with the selling process and help the seller with getting the correct information to the Sellers Bank or Banks to expedite the process, but the client must cooperate with the process. Below is a general process explained, and could vary from state to state and county to county.
What is a Short Sale?
A real estate short sale is a agreement between the seller of a home in the beginning stages of foreclosure and their lender, which the lender is allowing the home to be sold for less than the existing loan balance outstanding. The mortgagee would accept less than the loan amount in order to avoid a foreclosure proceeding. This short sale would result in a substantially discounted purchase price for the buyer of the home. The buyer would then proceed with the purchase of the home much the same as in any conventional Real Estate transaction.
When can you start the Process for a Short Sale?
Depending on individual state law and regulations, a foreclosure can proceed as quickly as 35 days from the date the notice to the borrower is filed. For that reason, time is of the essence and you should allow a window of no more than 60 days to effectuate a lender approved short sale. It is best to contact a Real Estate Agent as soon as possible if you think you may need a short sale.
What documents are necessary to proceed with a short sale?
Your Local Realtor can help you with the individual documents necessary to proceed with the short sale will depend on the lender. Typically the lender will require hardship letter detailing the circumstances behind the short sale. A signed, valid purchase and sales contract, preliminary HUD-1 settlement statement and a preliminary estimate of proceeds to the lender. There may be additional requests for more detailed information on the financial condition of the seller, ie; pay check stubs, bank statements, a personal financial statement and monthly budget assessment, amongst other things.
Will the seller’s credit rating be affected if they allow a short sale on their property to occur?
It is important for the homeowner to get advice from their attorney and tax advisor for this information. While it is up to the individual lender to decide what to report, what often happens is the loan will report as “paid” on their credit report. While that good news the bad news is that there will likely be a reference that says “settled for less than originally owed” or something similar. It is certainly more advantageous to have the short sale referenced than to have a foreclosure on their credit report. This also can vary from state to state, depending on the law and regulations from your particular state.
Will a lender allow the seller to make a profit on a short sale?
Most likely not if the seller cannot make the payments on their property. So they would not have any equity left in the home. They may have extracted equity from a previous refinance of the home, but their current loan balance will be higher than the selling price of the home.
If a seller is in bankruptcy, will that affect the short sale of the property?
And again, State law vary, as most lenders would not consider a short sale if the homeowner is in the middle of a bankruptcy proceeding. Negotiating a short sale between the parties is considered a collection activity and such a negotiation is prohibited in bankruptcy.
Will the bank or lender require an appraisal on the home in a short sale?
Not in the beginning, The Buyers lender will typically require an appraisal to make sure the buyer is not paying more than the home is worth, and that usually happens after the offer has been accepted by the Sellers Bank(s). Some Banks will order a BPO or brokers price opinion. The lender will need some formal assessment of the value of the home in order to make a decision as to accept or reject the short sale offer.
Tax implications in the short of real estate.
The Seller before the Short sale occurs should consult with their Tax Advisor or Attorney. Much like the issue of credit reporting, the circumstances are individual to the lender. As a short sale represents a loss for the lender, they can report the amount lost a debt forgiveness to the seller. If a formal tax form 1099 is filed, the seller may be responsible for paying taxes on the amount of debt forgiveness, depending on the state and the county.
Why would a lender allow a short sale to occur?
Quite simply, it may benefit all the parties involved in the transaction. The seller is relieved of the home they cannot afford. A costly foreclosure proceeding by the lender is avoided and the buyer purchases the home at an attractive.