Short Sale Home Buying 101
May 12, 2010
A short sale is nothing to be afraid of, as it is nothing more than when a home is sold for less than the amount left on the mortgage loan. This may sound very easy, however, in order for this to work; the lending company must agree to take less than the remainder of the mortgage loan.
For some homeowners a short sale is a blessing, as they do not have to be behind on their mortgage in order to seek a short sale. If a seller wants to use a short sale, they must owe more on their loan than the home is actually worth. This means that if they put the home on the market, they would not be able to receive the amount they owe on the mortgage loan and they suffer from a financial hardship that makes it impossible to repay the mortgage.
If you want to pursue a short, you will need to get together your short sale packet. The packet should posses such things as tax returns, monthly expenses, a listing agreement, financial statement showing income, bank statements, a purchase agreement, a financial hardship letter, and an estimated HUD statement.
If you do sell your home through a short sale, there will be of course a difference in the money you owed on the mortgage loan and the money the lending company received with the short sale. This difference is known as the shortage or deficiency. The shortage can be negotiated. In some instance, the lending company may ask for a promissory note for this amount of money, which means that you will be responsible for the amount. Another lending company may decide to file a collection on the difference or seek a judgment in court for this amount.
If you plan to sell your home in a short sale, you should be sure that any amount of loan is still on your shoulder or if you are going to be released from the difference should all be in writing. Never take the word of a person at the lending company, ask for this information be given in writing. If the lending company releases you from the difference, the lending company can use this difference and write it off with the Internal Revenue Service. This means that you will be responsible for paying taxes on the difference. The Mortgage Debt Relief Act of 2007 in most cases allows taxpayers the possibility for relief from tax on mortgage debt forgiveness.
Another thing you need to take in consideration before opting for a short sale is that it will affect your credit score. However, if you ensure you make your payments on time and are not making late mortgage payments it will help your credit rating. The lending company will in most cases work with you if you have kept up to date on your payments.
6 Comments to Short Sale Home Buying 101
Comments
I fully endorse your point that any agreement regarding the shortfall or release from the shortfall MUST be in writing.
I think it is also perhaps a good idea to point out that although the short sale will have an effect on your credit rating, this will not be nearly as bad as a foreclosure on your credit rating.
Of course you don’t have to be in a situation where you are at risk of foreclosure to short sell, however this is typically when people consider this course of action.
Short sales are very powerful tools for those than need to use them. Most (not all) people that short sale won’t be in a position to buy a new house within 2-3 years anyway.
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I think a short sale is great for both parties. When I bought a house right before it went into foreclosure I felt really good about the deal I made and about helping out the other family. Yeah I didn’t do much for them right up front, but they saw the difference in their credit score soon after the house was pulled off their credit. what a nice guy I am.
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Related and interesting. Thanks for providing these useful tips.
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