your home is worth $200,000, but you owe $220,000 on it.
If you were to sell it in the open market at $200,000, you
might net $184,000, or $36,000 less than what you need to
pay off the loan. A short pay off is where your lender will
forgive a portion or all of the short amount.
about all of them will, with justification. Justification
might mean a substantial loss of income that would prevent
you from paying on the mortgage, therefore being forced
in a position to sell the home. Attempting to sell short
so you can upgrade to a larger property is not justification.
In addition, lack of cash reserves will also serve as justification.
Don't expect to place your home on the market at 75% of
market value and expect your lender to jump on any offers.
on how you negotiate the transaction, it could go on your
credit report as, "settled," or, "paid,"
or "short payoff." It depends on the lender and
how well you can negotiate.
If you have a Freddie Mac loan, Freddie Mac will probably
want you to contribute to the short sale, get your agent
to reduce brokerage fees, and get the buyer to take the
property with the termites. Some lenders will just ignore
is very important. When you place the property on the market
(go with an agent), your agent should send the lender the
past 2 years tax returns
marketing plan for your home
broker price opinion (like an appraisal).
you have an offer, all of the above should be enclosed
with the offer (except for the marketing plan) plus the
purchase agreement, and a good faith estimate as to what
the lender will net after the close of escrow.
are correct. If you're loan is current, you may be able
to get a qualified buyer yourself. If your loan is delinquent,
or in default, you don't have time to play around getting
your home sold. You need as much exposure as possible.
is one situation where "No," means, "Maybe,
you just haven't convinced me that participating in a short
sale is to my benefit." Keep hammering your lender,
and do not take your home off the market until your lender
agrees to a sales price and the prospective buyer has formal
assets are traceable, except for personal collections (guns,
coins, etc.). If you own another property, it will show
up on your credit report. Your lender may back track to
your original loan application to see if there are any other
assets. No, don't hide assets. If your lender discovers
you're not dealing honestly, they'll never co-operate.
lot will say they can. There's no real way to tell if they
can. If your home goes into foreclosure, you'll get flooded
with a ton of mail. There's a good bet that most of the
mail is from people who have helped out previously in these
situations. One way to tell is if the person you're dealing
with will ask you for the information outlined above.
They'll know these are the requirements.
this is a good example of a misnomer in the foreclosure
arena so this "real estate criter" is going to
add it to the FAQ. There are no deficiency rights in California
for Purchase Money Loans. This is the loan you obtained
in order to purchase the property. Once you refinance the
property, take out an equity line of credit, obtain a consumer
loan that is secured by the property, this rule no longer
applies. The lender has the right to go after you in a deficiency
judgement, even if a senior lien holder takes the property
back and a junior loses his security instrument.
any lender agrees to a short pay, they are relinquishing
their right to pursue the borrower in the future
According to IRS Section 108 a-e, there are debt/income
interpretations that may come into play. The IRS may view
the deficiency on a non-purchase money loan as income and
demand you to pay taxes on that amount. If the short pay
transaction resulted in a net loss of $20,000 to the lender,
your tax liability could be around $6,350.
limit your tax liability. In some cases (not Citicorp, Fannie
Mae, or Freddie Mac) the senior lien holder will allow for
some funds to be allocated to the juniors. If you allow
the property to go into foreclosure, and the juniors lose
100% of their money, you can get taxed on the full amount.
You should really contact a CPA concerning this part of
the Tax Code.
feedback from other states would be appreciated. There are
certain regions where FHA will not participate in short
sales. One region is the state of California. If you are
in foreclosure on an FHA loan in California, you may want
to approach HUD to see if they will consider a lower interest
rate, or some type of repayment schedule until you get back
on your feet.