7 steps to sucessfully short sale your home
You are held hostage in your own home and see every month your saving dwindling. Many hope for the better and the market rebounding sooner or later, but are on the other side convinced that the real estate hype of the 2006s and 2007s was not a good idea. So why should this happen again soon? “I don’t know”, but it might…
Before your retirement funds are completely gone and you are completely broke, it is time to take action now.
The first step is, get yourself an objective picture of the situation. Most of us can’t get an objective picture of themselves, so better get somebody who can and listen.
There are many ways to lose a home but signing away ownership in a manner that destroys credit, embarrasses the family and strips an owner of dignity is one of the hardest. For owners who can no longer afford to keep mortgage payments current, there are alternatives to bankruptcy or foreclosure proceedings. One of those options is called a “short sale.”
Roughly half of my sales in Sarasota / Bradenton over the past few years are short sales. That’s how prominent short sales have become.
When lenders agree to do a short sale in real estate, it means the lender is accepting less than the total amount due. Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose; moreover, not all sellers nor all properties qualify for short sales. In addition there are specific government programs like HAFA encouraging lenders to allow short sales.
As a real estate agent, I am not licensed as a lawyer nor a CPA, so feel free to discuss your situation with either one anf if a short sale is right for you. Keep in mind, banks do not pay for banks or CPAs, so I recommend starting with information readily available before having additional expenses.
Debt forgiveness and deficiency judegements
In about 70% of the cases, banks forgive debt for first mortgages on primary residences during a short sale. 2nd, 3rd or higher liens are rarely forgiven as well as mortgages on investment or 2nd home properties. With a foreclosure you are not off the hook. You are leaving the action to the bank, the property eventually further deteriorating when sitting empty and REO properties are usually selling at a much lower price than short sales. At the end the unpaid amount can severely increase. If the bank then seeks a deficiency judgement… And more and more banks squeezing out every penny afterwards…
States have increased the burden to file for bankruptcy in recent years. Bankruptcy is an alternative if you have severe financial issues which are NOT real estate related. Let’s say you have business debts, extreme credit card debts or debts from guarantees you signed. But keep in mind, some debts like education loans will not be discharged in bankruptcy. As a rule of thumb, your debt outside of real estate should exceed $150,000 to 200,000 when considering this option.
More and more banks are seeking deficiency judgements on foreclosures now. Even if your debt is not forgiven in a short sale (usually
IRS has Mortgage Forgiveness Debt Relief Act of 2007 which excludes taxes for debt forgiveness on primary residences (up to $2M). A short sale of a primary residency (up to $2M) does not have a negative tax impact. Investment losses can be tax deducted (you sell the investment for less) and calculated against gains for debt forgiveness, so you are usually good here too. Most problematic are 2nd homes not used for investment purposes, i.e. not rented. Here you could end with a tax burden, therefore in those cases you should consult with your CPA first.
Find out on the next page how to analyze your situation.
If you are ready and seek support in selling your home please contact:
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