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SHORT SALE: Live to Fight Another Day
The reason you want to short sale your property is to save your credit, and get out from under your mortgage that you can no longer afford. A FORECLOSURE on your credit report will always be there. It will affect you getting a mortgage, car loan, or certain job clearance. A foreclosure or personal bankruptcy can hurt you for years to come.
See: Short Sale vs. Foreclosure
A DEED IN LIEU of a foreclosure has the same negative effect on your credit. Even though you surrender your house peacefully to the bank by giving them the keys back, it is in the same class as being foreclosed.
A personal BANKRUPTCY may free you from debt, but it will destroy your credit for no less than 7 years. It may affect job clearance and any future borrowing. It may be the only way to go for people who are in high credit card debt and underwater on multiple properties, but too many people are being led into this without knowing their best option.
A SHORT SALE may get you off the hook for the deficiency balance. The Mortgage Forgiveness Debt Relief Act (MFDRA) has been extended until December 31, 2012 for principle residences. Excused debt or discharged indebtedness WILL NOT be charged against you as gross income (i.e. 1099 from bank). All excused debt must be related to the property. The bank will not come after you for the difference if it is your primary residence.
In a SHORT SALE, only the late or non-payments may be reported to the credit agencies. The affects on your FICA score are small compared with a foreclosure, deed in lieu or personal bankruptcy. If it is your primary residence, you want to avoid a deficiency judgment against you, as well as a 1099 for the excused debt. We negotiate those on your behalf.
To qualify for a short sale, you have to meet certain criteria:
- The property must be worth less than what is owed.
- You must show a hardship:
- Divorced
- Death of spouse
- Lost job or lower income
- Wage earner got sick
- You must be insolvent (broke). Your money on hand (net worth) is less than the difference between value of property and the mortgage.
- Must be willing to stay in and show your property and to move out when new buyer closes. You cannot abandon the property.
A short sale gives you a clean start without destroying your credit. It is nothing to be ashamed of. These are unprecedented times where easy mortgage money artificially ran up the price of housing to levels that were unsustainable. Couple this with rising insurance, real estate taxes and utilities, the cost of homeownership got completely out of hand.
The government has stepped in and has created laws to excuse debt. The banks are streamlining the short sale process. They have opened up special departments and have hired employees to handle these. We will negotiate on your behalf to get your property approved for short sale status. We will negotiate with the mortgage lender, both first and second positions, as well as any other lien holders. Your credit score will not be destroyed by selling a property short. In most cases, only the late payments will be reported. We do advise you to talk with your accountant or tax professional. We will handle your business in a very discrete and compassionate manner.
Investment Properties and Vacation Homes
You can short sale 2nd homes and investment properties, but the lender may report the excused debt as income (1099) to you. This still may be your best option if you are insolvent, as the benefits from avoiding foreclosure far outweigh the tax liability. We will try and negotiate no deficiency judgment.
There may also be other options available to you if you have positive net worth, but have come upon hard times. These include LOAN MODIFICATIONS which will reduce rate and payment or FORBEARANCE agreements which will add the missed payments to the back end of the loan.
Important Facts Concerning Distressed Properties and Mortgages
- 7 out of 10 people go into foreclosure without ever attempting to short sale their property.
- 50% of delinquent borrowers never speak with the loan servicer.
- The banks do not want to own your house. Now more than ever they are cooperating with delinquent loans.
- The average American family can survive for only 60 days after income has been interrupted.
- Certified Distressed Property Experts (CDPE) have a significantly higher closing rate than an ordinary broker or sales agent. We know how to get these done.
- In a foreclosure there is no one to hold off the deficiency judgment against you.
- Deed in lieu, foreclosure, and bankruptcy all destroy your credit for no less than 7 years.
- No commission is paid by the homeowner. The lender pays our brokerage commission.
Call our office at 516-682-8300 x 16 and speak with Mike concerning your current situation. We will advise you if a short sale is the right way to go. In this current environment everyone knows someone that is underwater on a property or late on their loan. These are unprecedented times in the real estate market. Pass our contact information to any family or friends and we will help if we can. Avoid foreclosure, get out from under, save your credit and live to fight another day.
Michael J. Maloney is a Certified Distress Property Expert (CDPE).
- Highly trained REO Broker and manager of Bank Owned Properties.
- State Certified Real Estate Appraiser
- Member of The National Association of Realtors, Long Island Board of Realtors
- Designated SRA member with The Appraisal Institute.
We have an excellent team of Short Sale Specialists, Closing Attorneys, Tax Professionals, Title Companies, Mortgage Lenders, Real Estate Appraisers, Clean-out and Moving Companies.
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