TOP 10 SHORT SALE MYTHS
Recently the California Association of Realtors sent out a press release regarding the top ten myths of a short sale. After reading it I thought that some of you might benefit from the topic. Here is my adaptation of the story. I hope you enjoy.
First it is important for you to note that by most accounts 2012 is expected to be the year of the short sale. This will be for a number of reasons, not the lease of is the likelihood that the IRS could begin taxing forgiven debt beginning in 2013 if their current policy is allowed to sunset. So the motivation for sellers who are in a delinquent situation to sell will be a major driving force.
Myth 1: The homeowner must fall behind on a mortgage payment in order to qualify for a short sale.
Truth: This was the case years ago. In fact it was common place for real estate professionals to consul their clients to intentionally halt payments to “motivate” the banks to cooperate with the transaction. Today what a seller must be able to prove is that they truly do have a financial hardship. This can be due to an adjustable mortgage increasing the interest rate thereby placing a burden on the property owner trying to meet their obligations. The hardship might also be due to a loss of employment or change in job position, hours and or pay. It could also be brought on due to health or medical issues. And finally the fact that the home is severely upside down in some cases might also be considered a hardship.
Please do not, allow a real estate agent to convince you to stop payments. This could in fact make matters much worse. And, in some cases sellers have been able to immediately repurchase after short selling because they continued to make their payments.
Myth 2: Banks would rather foreclose on a property than approve a short sale.
Truth: the process of foreclosure cost the banks on average between fifty and seventy thousand dollars before they can then resell the property. On top of this in most cases when a home is foreclosed on the previous residents will remove things of value and generally leave the home in worse condition than those who short sale. This coupled with the fact that the banks make on average twenty four percent more on a short sale when compared to foreclosed homes and you soon see that the banks have strong motivation to cooperate with the short sale process. And, on the plus side for the seller many banks offer cash incentives to short sell their homes for these reasons.
Myth 3: Homeowners must be pre-approved by their lender to be eligible for a short sale.
Truth: Most lenders will consider short sale offers. However, each individual lender may have unique and specific processes to follow in order to present an acceptable short sale offer. And skipping any part of their process will most likely result in a rejection of the short sale application.
Myth 4: Short sales never close.
Truth: While they certainly take longer (in most cases) than an equity sale the process for the most part has been streamlined. And in fact today short sales represent as much as sixty five percent of most markets.
Myth 5: Short sales take months and months to close
Truth: Short sales can close in as little as thirty days if all the stars align correctly. This means that the sellers complete and the negotiator submits a full and complete short sale package that meets the lenders requirements. However, it is still more likely that a short sale can take up to one hundred and twenty days in most cases.
Myth 6: Damage to the homeowner’s credit standing is comparable in a short sale when compared to foreclosure.
Truth: In most cases credit repercussions and deficiency protections are more damaging with foreclosure. In most cases a successful short sale can expedite the sellers ability to purchase again by as much as two to four years.
Myth 7: Following a short sale the homeowner will be ineligible for the next five to seven years.
Truth: Some conventional buyers can purchase again in as little as two years, and FHA buyers in three years.
Myth 8: After a short sale transaction, the homeowner will receive a 1099 and be forced to declare the loss as income.
Truth: The owner might receive a 1099 however due to the 2007 Mortgage Forgiveness Debt Relief Act, among other considerations, the homeowner may not owe any taxes on their transaction. As I mentioned before, this act is scheduled to come to an end at the end of 2012 unless extended by congress.
Myth 9: The lender will sue the homeowner after the close of a short sale (or foreclosure, deed in Lieu) for the deficiency.
Truth: California has certain anti-deficiency protections in place for short sales and foreclosures which shelter the seller from liability in certain circumstances.
Myth 10: A real estate professional does not require any special training to learn all the ins and outs of successfully negotiating a short sale transaction.
Truth: I have been doing short sales since 1993 and today, every time I have the opportunity to attend a training that will enhance my knowledge base I do so. Today the guidelines that govern whether or not a short sale will be allowed change on a daily basis, and to attempt to negotiate one without the latest information is pure folly. So when you consider hiring an agent, make sure that they have gone through a rigorous interview and that you are comfortable as to their