Homeowner's that are facing foreclosures have options. In this market selling your house to avoid foreclosure doesn't sound like good a idea. You probably owe more that what you can sell your home for. However, it is possible using a Realtor experienced in the "Short Sale" process.
First of all, let's define a "Short Sale" - Simply put, the lender agrees to accept an amount less than what is actually owed to them. Example: You $200,000 on your home, but due to current market condition you could only sell it for $125,000. The lender would agree to $125,000 and settle your debt.
So what happens to that $75,000 that the bank forgives??? Usually, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. The Mortgage Forgiveness Debt Relief Act of 2007 allows you to exclude certain cancelled debt on your principal residence from income. Consult a tax proffessional for complete details.
Back in October 2007 the lender's were not really acknowledging the Short Sale Listings that I had. 10 Months later, it is now a different story. While they still take quite a bit of time to complete the transaction, the lender's are cooperating more. More buyers are educated in the Short Sale process too. They understand that it takes a while to complete and are in for the long haul.
What is the Short Sale Process? - Consult with a Realtor that is experienced with Short Sales. The process is tedious and they can help you do this work:
You may need to make a half dozen phone calls before you find the person responsible for handling short sales. You do not want to talk to the "real estate short sale" or "work out" department, you want the supervisor's name, the name of the individual capable of making a decision.
Lenders typically do not want to disclose any of your personal information without written authorization to do so. If you are working with a real estate agent, closing agent, title company or lawyer, you will receive better cooperation if you write a letter to the lender giving the lender permission to talk with those specific interested parties about your loan. The letter should include the following:
- Property Address
- Loan Reference Number
- Your Name
- The Date
- Your Agent's Name & Contact Information
This is an estimated closing statement that shows the sales price you expect to receive and all the costs of sale, unpaid loan balances, outstanding payments due and late fees, including real estate commissions, if any. Your closing agent or lawyer should be able to prepare this for you, if you do not know how to calculate any of these fees. If the bottom line shows cash to the seller, you will probably not need a short sale.
The sadder, the better. This statement of facts describes how you got into this financial bind and makes a plea to the lender to accept less than full payment. Lenders are not inhumane and can understand if you lost your job, were hospitalized or a truck ran over your entire family, but lenders are not particularly empathetic to situations involving dishonesty or criminal behavior.
It is best to be truthful and honest about your financial situation and disclose assets. Lenders will want to know if you have savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other real estate or anything of tangible value. Lenders are not in the charity business and often require assurance that the debtor cannot pay back any of the debt that it is forgiving.
If your bank statements reflect unaccountable deposits, large cash withdrawals or an unusual number of checks, it's probably a good idea to explain each of those line items to the lender. In addition, the lender might want you to account for each and every deposit so it can determine whether deposits will continue.
Sometimes markets decline and property values fall. If this is part of the reason that you cannot sell your home for enough to pay off the lender, this fact should be substantiated for the lender through a comparative market analysis (CMA). Your real estate agent can prepare a CMA for you, which will show prices of similar homes:
- Active on the market
- Pending sales
- Solds from the past six months.
When you reach an agreement to sell with a prospective purchaser, the lender will want a copy of the offer, along with a copy of your listing agreement. Be prepared for the lender to renegotiate commissions and to refuse to pay for certain items such as home protection plans or termite inspections.
If you are currently contemplating selling your home to avoid foreclosure in a "Short Sale" situation I am happy to consult with you for free, either in person, over the phone or via email. I specialize in Residential Real Estate in Queen Creek.
Amy Gerrish, Realtor
Homesmart Real Estate
DIRECT: 480-294-8680
FAX: 866-602-4601
