How Does a Short Sale Work?
Short Sales are unfortunate situations where the homeowner is losing their home due to it being overencumbered by a mortgage. A mortgage modification may also be available to these homeowners. Before taking any action it’s good to know the value of your home. Call us (Roy and Misty Cooke) at 702-376-1515 or e-mail us at RealtyAce@aol.com to get an approximation of your home’s value prior to spending any time or money on your dilemma.
A short sale is a sale in which the lender agrees to accept a less than the full payoff amount from a third party to satisfy your mortgage. You’ll be required to document your income and assets and write a hardship letter that explains why you are no longer capable of making your mortgage payments. You’ll place your home on the retail market; find a buyer who’ll agree to your short sale terms after which the agent (or an attorney) will negotiate the deal with the bank. These negotiations can be both time consuming and complicated. It requires a meeting of the minds of the owner, the listing agent, the buyer, the buyer’s agent and the lender. Trust me; you’ll need an experienced negotiator on your side. Additionally, an experienced realtor will know the nuances of each lender. All lenders have different policies and how you structure your short sale is going to be key in the deal you acquire. In a decision this big in life, you need competent counsel.
There are tax, credit and legal consequences of a short sale that will impact your future. You should FULLY understand how this will play in your life before committing to a short sale.
1.Taxes:The IRS treats forgiven debt as income, which means that if your lender received $100,000 through your short sale, but you owed $200,000, the unpaid $100,000 is considered income by the IRS. The Mortgage Forgiveness Debt Relief Act of 2007, designed to help homeowners who lost their homes to short sales and foreclosures, expired at the end of 2013. It’s possible the Act could be reinstated at some point, but until that happens, you’re responsible for paying income tax on the amount of debt that’s been forgiven by your short sale.
2. Credit score:A short sale may be slightly less damaging to your credit score than a foreclosure or bankruptcy. That said, it will still cause your score to drop significantly. If you haven’t been paying your mortgage for several months, often a requirement before many lenders will consider a short sale that will also hurt your credit further.
3. Legal Recourse: When you procured you mortgage, it was highly likely when Nevada was a recourse state. This means it’s possible that your lender could sue you for the remainder of the money owed on your mortgage after the short sale. It’s important to work with an attorney and broker with experience in short sales who can help you understand the legal paperwork you will sign and let you know if you could become liable in the future for the rest of the mortgage debt. A talented team can often remove this negative option in the negotiations. It’s another reason why it’s important to have a competent team.
If you wish to discuss your underwater situation with an experienced and knowledgeable broker who will give you the advice that’s best for you, not him, give Roy and Misty Cooke a call at 702-376-1515 or e-mail us at RealtyAce@aol.com.