Fort Lauderdale Beach Real Estate

Jon C. Mumford, REALTOR-ASSOCIATE, CRS, ePRO, GRI, GREEN, RECS, SFR, SRES

Short Sales

CLIENT SHORT SALE INFORMATION

What is a short sale?

A pre-foreclosure short is simply what it looks like-homes sold “prior” to the foreclosure sale, and “short” of a full payoff.  Candidates have negative equity, do not want to keep the home and are experiencing financial hardship.

Your cooperation and participation with the bank as the seller is extremely important.  Without your full participation in submitting financial information, the invest will deny offers that are submitted.

Why a short sale?

The benefits are fairly standard.  The first lien holder will, typically, release the seller from the remaining debt (after subtracting the net proceeds of the sale from their total payoff), remove foreclosure credit blemishes, and in most cases, exempt the seller from the tax consequences of a 1099 capital gains filing to the IRS.

Forgiveness of debt basically relieves the seller from judgements, or even garnishment of wages, in some states.  The judgement is calculated after all possible funds, and MI claims have been applied.  The judgement is placed on your credit report for all to see and is designed to prohibit you from buying or selling anything without satisfying the judgement first.  The judgement remains in place for several years, with the the right to renew.

Who is involved in the short sale?

You, myself, the investor, the mortgage company or “servicer”, the mortgage insurance or “MI” company as well as second lien holders, judgement holders and creditors with liens.

Who do you contact?

You want to contact the “Loss Mitigation” department, not the collections department (who are sometimes unaware this department even exists) and you have to be persistent.  There is no way to avoid the collections calls, the process can be frustrating, but if you read the benefits of the short sale below, I think you will agree it will be worth your time and effort.

What about the 1099 tax form?

This aspect of a short sale is not standard across the board. (servicers can file a 1099 capital gains form for the seller on their loss)  All Fannie Mae and Freddie Mac loans will fall within this exemption (they are the two largest investors in the USA-the marjority of loans will fall within this exemption)  VA and FHA loans are not exempt-they have the final say but this can be part of the negotiations.  However on FHA loans, sellers will receive $750 at closing for their participation and an additional $250 if the home closes within 3 months!

HOW DOES A SHORT SALE BENEFIT YOU?

  • With a closed short sale, a judgement will not be placed against you for Fannie Mae, Freddie Mac, VA or FHA loans.

  • The removal of the FORECLOSURE from your credit report.  While the foreclosure is active, the notice will remain on the credit report until the loan has been foreclosed, or an approved short sale is closed (the foreclosure process is not stopped or delayed during the listing or upon receiving an offer)

  • You will be able to qualify on rental applications or purchase another home in the future without having to disclose a foreclosure on your application-this has a huge impact on your future credit worthiness

 Banks don’ t want to be in the real estate business and during the delinquency and foreclosure action, they are responsible for the taxes and insurance payments.  Because of this, they are willing to negotiate a short sale with you because they could reduce their losses which could be greater at the end of the foreclosure process.

WHAT YOU NEED TO DO:

  1. Complete my Sellers Questionnaire and return it to me.
  2. Contact each lender or lien holder, asking for the Loss Mitigation department.  They will send out a list of the required financial documentation/statements to you to be completed and given to me.
  3. Complete the Seller’s Authorization for each lender and fax or mail directly to them (this gives me authorization to speak to them directly regarding the mortgages)
  4. Find out what the “full payoff” is, not the loan balance.  The full payoff will include delinquent interest and late fees, this can take some time and you need to request it “in writing” as soon as possible.
  5. Complete your financial package for each lender(short sales are rarely approved on offers when there is no financial package from the sellers-the only time it would not be required is when they are protected by bankruptcy or deceased) This includes your hardship letter explaining the reason for the delinquency, last 2 months pay stubs, last 2 years tax returns with schedules or W2 forms, and proof of hardship(divorce decree, layoff letter, medical bills, etc.)

 After you have completed the above steps, I will still need your full cooperation throughout the short sale.  It will take a few weeks to review the file and you will be assigned to one person that will be the point of contact for you and I.  At this point the loss mitigator will replace you when reducing list prices, accepting or countering offers and obtaining investor approval on all offers.

4 Responses to “Short Sales”

  1. Tax Lawyer said

    I’ve been active in taxations for longer then I care to acknowledge, both on the private side (all my employed life-time!!) and from a legal point of view since satisfying the bar and pursuing tax law. I’ve provided a lot of advice and corrected a lot of wrongs, and I must say that what you’ve put up makes utter sense. Please persist in the good work – the more people know the better they’ll be outfitted to comprehend with the tax man, and that’s what it’s all about.

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