Real Estate Short Sale Guide

It’s not possible in a short sale/pre-foreclosure agreement to include selling your home as a contingency in the deal. Many listing agents will not accept an offer with a contingency to sell their home and most banks or lenders in this market will not accept it either.

A pre-foreclosure home requires the cooperation of the lender since they will not be receiving a full payoff.  Short sales are difficult enough to complete successfully complete to close escrow, so the condition of selling your home would only add to the mess of the deal.  Everyone involved wants a sure sale as quick as possible to get the home off the books.

Sell your home first then take the cash and buy a preforeclosure.

Short Sale Contingency Articles:

• Room to Negotiate with Short Sales?
• Short Sale Contingencies
• Short Sale Contingencies and Lenders
• Short Sale Financing
• The Short Sale Purchase Agreement
• Time Contingency on A Short Sale

A 3rd party can submit an offer on a short sale.  They just need to sign a purchase agreement and preliminary HUD 1 or net sheet, and some lenders may require proof of financing.  Call the lender or loan servicing company to find out what documents they require and send everything in one fax and follow up in about 3 to 4 days.  At that time, ask:

• How long does it take overall for the short sale package to be reviewed?
• When will the property be appraised?
• When will the negotiator be assigned to the file?
• How will you be notified once they have reached a final decision?

The seller will give the agent a letter of authorization and send that in immediately with other documents of the short sale packet to help things move smoothly and allow the agent to represent the seller in the short sale situation.

Not all short sale requests are approved by all mortgage lenders.  It’s been said that less than 50% of all requests for short sales are actually approved, leaving the homeowner with less options.

If this is the case, speak to an attorney immediately who specializes in real property foreclosure.  A bankruptcy attorney can also provide some helpful advice in dealing with any deficiency balances owed to the mortgage lender.  Losing your home to foreclosure doesn’t mean you can never buy again, it means it will take several years to re-establish your credit to allow purchasing a home again.

A short sale is when a homeowner owes more than the market value of the peroprety.  If the home is purchased and approved via the lender, the lender ends up netting a loss in the purchase and usually will pay for real estate commissions.  Although, to get a short sale completed is another task.

Each lender or bank has their own policies governing short sale procedures and criteria of what they will accept.  Just because your home value falls, does not mean you are qualified for a short sale.  In a short sale, true financial hardship must be proven.

If you have mortgage insurance (PMI), on the loan, the mortgage insurance company will also need to approve the sale of the short sale.  The mortgage insurance company would pay the lender the difference in the loss and many times the mortgage insurance company will want the seller to take back a note for some of the loss and pay some back to the company.

If the lender is the servicer of the loan, there may be more than one entity for the short sale to be approved by.  This will happen when a note has been sold several times in a short sale period or when the lender holding the note is an investor.

If you have a 1st and 2nd mortgage complicates things as it will take extra time to get the short sale approved.  You will need the approval of b oth lenders to get the offer to close and get a clean title.

Not every homeowner is qualified to do a short sale so it is very important to talk with a real estate to determine your qualifications.

The elements of a good real estate purchase agreement are no too much different from one deal to another.

• Adherence to current state laws
• Competent parties and signatures
• Adequate legal description of the property
• A clear statement of when sellers will vacate and what items are included or excluded from the sale
• Contingencies for inspections and well-defined deadlines
• Contingencies for title research and discovery of liens
• A schedule of document deliveries and the obligation of both parties

What’s the difference between short sales and foreclosures?

A short sale (pre-foreclosure) is when a seller accepts less than what is owed on the property and calls it “settled”.  The homeowner cannot make the payments and must prove that it is due to a hardship.  All liens on the property are extinguished.  There is some credit damage to the homeowner’s credit rating but less than a foreclosure.  A foreclosure will show up on a credit report as a “default” and can take your credit rating down 200 to 300 points and will not be able to get a reasonable credit rating for at least 7 years.  A foreclosure can even leave an opening for secondary lien holders to file suit for unpaid balances and can potentially garnish wages.

Homeowners whose mortgage debt was forgiven during 2007 may be able to claim special tax relief by filling out a newly-revised Form 982 and attaching it to their 2007 federal income tax returns, per the IRS.

Usually, debt forgiveness results in taxable income but under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers may exclude debt forgiven on their principal residence if the balance of the loan is less than $2 million.  The limit is one mission for a married person filing separate.

Due the late-December enactment, the reporting procedures for the law are not incorporated into tax preparation software or IRS forms, thus making it important for people using tax software to check with their provider for updates that include a revised Form 982.

The new law applies in 2007, 2008 and 2009 for forgiven debt.  Debt reduced through mortgage restructing, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for the relief.

The debt must have been used to buy, build or imporve the taxpayer’s principal residence.  Debt forgiven on 2nd homes, rentals, business property, credit cards or car loans do not qualify for the new-tax relief provision.  But in some cases, other kinds of tax relief, may be available.

The Internal Revenue Service (IRS) urges borrowers to check the Form 1099-C.  Notify the lender ASAP if the information is incorrect.  Borrowers should pay special attention to the amount of debt forgiven in Box 2 and the value listed in Box 7.