The basics of a short sale

A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan. This occurs when a borrower can no longer pay the mortgage on their property. Banks are allowing more distressed homeowners to sell their homes for less than they owe. This is due to the high cost of foreclosing on a home and selling it, often times, for a below market price at auction.

If a short sale is the distressed homeowner’s best option, he or she needs to be informed on what to expect and what is required of them. We real estate professionals, work hard to educate the seller on the anatomy of the short sale transaction. It is also up to the homeowner to research and learn about short sales.

Before proceeding with a short sale:

Talk to your lender(s) to understand your options. The type of loan and property may determine if a short sale is the best remedy.

Talk to your tax advisor. You will need to know if your short sale will trigger a taxable event. Also, go to www.irs.gov for Mortgage Forgiveness Debt Relief Act and Debt Cancellation tax information.

You may want to obtain legal advice. An attorney can advise you about your legal liability.

Contact a real estate professional. Be prepared to discuss some of these items: what is owed on the property, how many liens, have you missed any payments and how many, status of your HOA assessments, have you been given a foreclosure date, if you have talked to your lender, accountant, and/or lawyer and what is their advice.

Short sales are based on a hardship. The homeowner has to explain in writing what the hardship is that is keeping them from making timely house payments. The hardship letter is one of the documents that is given to the lender. The hardship usually has some type of financial implications. Loss of equity in your home is not considered a hardship.

The homeowner will write a letter authorizing their realtor to negotiate with the lender on their behalf. Your realtor, once authorization is documented with the lender, will begin communicating with the lender.