What is a Short Sale?

Posted by on Sunday, October 31st, 2010 at 9:11am.

Rarely does a day go by that we don't meet with a homeowner who is interested in selling their home and in every conversation the subject of foreclosure always comes up. While most homeowners are familiar with a foreclosure most are not aware of short sale.

We have successfully represented hundreds of sellers and buyers with short sale transactions and they all came with their unique challenges. If you're considering a short sale as an option to either sell your home or buy your next home the first step is to ensure that you work with a Realtor who has experience with short sales and truly has an understanding of how the process is handled.

For more information on selling or buying a short sale contact us at 404-842-1555 or send us a message via our contact page.

The following article does a great job of explaining the advantages of a short sale over a foreclosure and is used with the permission of the National Association of REALTORS.

 

Foreclosure Alternative: The Short Sale

By: Gwen Moran

A short sale is far from hassle-free, but it's a better alternative than foreclosure. And now you've got a little help from your friends in D.C. Here are the facts about short sales and how to get started.

Short sales get government incentives

Although short sales are not hassle-free, at least you've got the government backing you. The Home Affordable Foreclosure Alternatives (HAFA) program provides financial incentives for lenders and borrowers to avoid foreclosure through short sales or deeds in lieu of foreclosures.

Participation in the HAFA program requires adherence to guidelines--including a standard process and minimum timeframes--that speed the process, says Dallas-based REALTOR® Tom Branch, co-author of Avoiding Foreclosure: The Field Guide to Short Sales. The HAFA program is for homeowners who can't keep their homes with the help of a loan modification.

Advantages of a short sale

  • You can be a homeowner again more quickly with a short sale in your past than with a foreclosure. New Fannie Mae guidelines help you qualify for a new mortgage in as little as two years after a short sale, as opposed to up to seven years after a foreclosure.
  • You will have more time to make relocation plans and save money than with a deed in lieu. A short sale may take four to 12 months. A deed in lieu of foreclosure arrangement typically requires you vacate your home within 30 to 60 days of signing, according to real estate attorney Lance Churchill.
  • You can receive up to $3,000 from your lender for moving expenses at the time of closing of a HAFA short sale or a HAFA deed in lieu of foreclosure. Relocation funds are part of the incentives of HAFA, but not necessarily for other short sale or deed in lieu programs of the lenders.
  • You can help your community's home values. Because the lender often receives a higher amount of the remaining loan balance than it would from the sale of a home after a foreclosure, short sales help support home values in the surrounding community.

Disadvantages of a short sale

  • Your credit score will take a severe hit. But that would happen anyway with a foreclosure. Fair Isaac, creator of the FICO score, says foreclosure and short sales have virtually identical impacts on your credit score. VantageScore--a company that has created a credit score model for consumers--says a short sale will lead to only a marginally lighter hit when compared with foreclosure. 
  • You may owe additional taxes. In the past, if your outstanding mortgage was $100,000 and your lender accepted a short-sale purchase offer of $90,000, you were liable for income tax on the forgiven $10,000, says Harlan D. Platt, economist and professor of finance at Northeastern University in Boston. However, the Mortgage Forgiveness Debt Relief Act of 2007, which runs through 2012, generally allows taxpayers to exclude income from the discharge of debt on their principal residence in some circumstances. Full relief is available only if the amount of forgiven debt doesn't exceed the debt that was used to acquire, construct, or rehabilitate a principal residence. Consult a tax professional and an attorney to minimize or avoid this liability.
  • In some states, your lender may still be able to come after you for the difference between the short sale price and the amount needed to pay off the mortgage. Your actual agreement with your lender and state and local laws and regulations spell out the details. Consult a tax professional and an attorney to minimize or avoid this liability. 

How to proceed with a short sale

  • Find a qualified REALTOR® experienced in short sales. Short sales are tough to navigate, and they're further complicated by your loan type--FHA vs. Veterans Administration vs. conventional loans. Real estate agents who specialize in short sales will know the proper steps and order of the steps involved. They'll also be able to navigate the many parties involved in the process and over-burdened loss mitigation departments. Look especially for agents who have Short Sales and Foreclosure Resource (SFR) Certification, which requires specialized training.
  • Gather evidence to support your need for a short sale as opposed to a foreclosure. You'll need to prove that you have little or no equity in your home, you're behind on your payments, and you're no longer able to afford your home. You'll need to write a hardship letter to the lender describing your circumstances, such as a divorce, job loss, illness, death, or other event that has impacted your income.

A short sale can be a time-consuming process, but if you can avoid foreclosure, it's worth it in the long run.

Gwen Moran has been writing about business, finance, and real estate for more than a decade. Her work has been published by Entrepreneur, Newsweek.com, Financial Planning, Woman's Day, and The Residential Specialist. She bucks the cottage trend and lives in a Colonial near the Jersey Shore.

 

19 Responses to "What is a Short Sale?"

Moraira Property wrote: An excellent artice with much detail in this. Short selling is not seen in Spain. We think it shoul. There are thousands of homes standing empty with few buyers in Spain. A little more imagination in the selling system from banks, developers and local government would be helpful.

Posted on Wednesday, November 3rd, 2010 at 9:50pm.

ronny wrote: short sale sounds selling house on a short time.
but after reading the whole article i understand it might be time consuming , but still we can avoid forclosure . thats good things

Posted on Wednesday, November 3rd, 2010 at 9:50pm.

Salt Lake Homes wrote: This just a very informative pieces of stuff regarding short sales in the market. Glad that you have shared this thoughts and ideas. It really helps understand readers better... Keep it up!

Posted on Wednesday, November 3rd, 2010 at 9:50pm.

Mesa Short Sale wrote: This is a great resource for those thinking about short sales. Many homeowners are not aware of the ins and outs, hopefully this can provide clarity to those looking for information.

Posted on Friday, November 5th, 2010 at 11:01am.

Buenos Aires apartments wrote: This is an interesting topic. Thanks for comming up with it, now I understand a little more about it. I agree with most of the comments written above although I have to say that some were really outstanding.

Posted on Wednesday, November 10th, 2010 at 9:15pm.

Steve wrote: Thanks for this. Short sales are always tricky, and you're right in saying people should always seek professional help!

Posted on Tuesday, November 23rd, 2010 at 8:19pm.

David wrote: I hope the word "short sale" will always need an explanation. That way we can get out of this mess that this economy is facing. Although it is still tough a short sale is by far better than a foreclosure. I do real estate and highly recommend when having mortgage trouble go with a short sales expert. It will help a ton!

Posted on Tuesday, November 23rd, 2010 at 8:19pm.

Louise May wrote: In today's market a short sale although is an attractive to many as a short term solution, will not benefit them in the long run. As you mention those who do will have their credit rating severely hit with the effects felt for many years after wards.

Posted on Monday, November 29th, 2010 at 11:59am.

Real Estate Celebrity wrote: Your MLS search tools were very easy to use on your real estate website We will definitely visit again!

Posted on Monday, November 29th, 2010 at 11:59am.

Jarrod Frenzel wrote: I had an old client of mine that found himself upside down in his home. We tried to negotiate with the lender to allow a short sale but they wouldn't play ball. I kept hammering them telling them that I could save them money in the long run. I think the lender wanted to foreclose because it was an FHA loan. The government insures these so the lender's losses were covered. It was in their best interest to let the foreclosure kick in so FHA would cover them. Didn't really seem right to me.

Posted on Monday, November 29th, 2010 at 11:59am.

Homes for sale wrote: I know you can't predict the future but have people been able to purchase homes through the bank after completing a short sale? Is a short sale credit suicide? I ask this because to qualify for one of these sale one must stop paying their mortgage for many months. Is this true?
Thanks!

Posted on Monday, November 29th, 2010 at 11:59am.

John Klein wrote: Wow. It boggles my mind that you would be liable for the taxes of the remaining amount. If you weren't able to pay for the house's mortgage, and had to do a short sale -- where would you get the money to pay the taxes? The money from the short sale all goes to the bank.

Posted on Saturday, December 4th, 2010 at 11:17am.

Philippine Real Estate wrote: Nice post! Lenders may accept short sale offers or requests for short sales even if a Notice of Default has not been issued or recorded with the locality where the property is located.

Posted on Saturday, December 4th, 2010 at 11:17am.

Dotti Driver wrote: You definitely need a Realtor who knows how to do these. You also have the have a great deal of patience if you are attempting to buy a short sale house. If you have a willing seller and a willing buyer it can still take months to actually close the sale.

Posted on Saturday, December 4th, 2010 at 11:17am.

Steve Redman wrote: Great info. You really come off as an expert in your field and know what it takes to work a short sale.

Posted on Thursday, December 9th, 2010 at 9:18am.

Robin Shernan Realtors wrote: Thanks for posting this article on short sales. You have done a great job of explaining what a short sale is, the pros and cons as well as the overall process. A few years ago there were very few of us in the real estate profession who could tell you what a short sale was. Today it is something we are almost all becoming well versed in.

Posted on Thursday, December 9th, 2010 at 9:18am.

Park Homes For Sale wrote: Very informative article. I live in Spain and they are not quite familiar with the short sale, I wasn't quite familiar myself. For when do you recommend to use a short sale?

Posted on Monday, January 10th, 2011 at 9:18am.

Lake Conroe Real Estate wrote: I had a short sale go south on me last month. I was representing the seller and had 3 offers on the table. The home owner didn't get some documents over in time and the bank just went ahead and foreclosed. I definitely learned the hard way that these short sales can be difficult.

Posted on Sunday, July 10th, 2011 at 8:06am.

homes for sale victoria wrote: I thought it was going to be some boring old site but I'm glad I visited I will post a link to this site on my blog! I am sure my visitors will find that very useful!

Posted on Friday, July 15th, 2011 at 4:25pm.

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