Real Estate Insight

Top 10 questions about short sales

Number 1

I am underwater and I can’t afford my house payment. How do I qualify for a short sale?

In most cases, you don’t need to “qualify”. However, there are criteria that lenders use to evaluate selling via a short sale. Usually, a poor financial outlook for the seller is compelling to any lender to cooperate and approve a short sale.

Number 2

When I sell the property as a short sale do I have to pay income tax?

Always consult your accountant or tax attorney to confirm. As of this writing, the Mortgage Forgiveness Debt Relief Act of 2007 will allow you to sell short and not have income tax issue.

Number 3

Who pays the property tax?

That depends on the seller’s financials and the lenders policies.

Number 4

I don’t have money to pay the agent’s commission. What do I do?

The bank will pay the commissions and sometimes back taxes and closing costs. They evaluate each situation to determine what they will pay and if they will hold the seller responsible.

Number 5

I’m behind on my payments and want to know who long I have before losing my home and how long it takes to sell a home as a short sale?

Legal timeframes for judicial and non-judical foreclosures and vary from state to state. A good video to watch about timing and short sales can be found here.

With regard to the short sale, there would be 2 parts. One is getting an offer from a buyer and the second would be getting an approval from the lender. For the first part it would vary on your price, market pressures in your area and marketing. The second part can take 3 to 8 weeks for an approval.

Number 6

Can I sell my home without the approval of the Lender for a short sale?

No. The lender would ultimately have to approve it because they are forgiving the debt. Better to get this approval up front when possible.

Number 7

Can I only do a short sale if I’m behind on my mortgage payments?

No. Based on recent lender policy changes, many have already started to accept short sales from sellers that are current.

Number 8

Can I still do a short sale with a second mortgage?

Yes. Both lenders will need to agree in completing the short sale. Although it can be more difficult. In many cases, the second lien holder gets nothing so they don’t have much to lose if it goes to auction. Some companies have a stated policy as to what they will take or do and some first lien holders may even pay the second.

Number 9

Why isn’t the mortgage insurance helping me?

Mortgage insurance is to protect the lender and allow them to meet lending guidelines so that they can allow loan amounts to exceed 80% of the value of the home.

Number 10

Will a short sale hurt my credit score?

Yes. It will have a negative impact. However, the severity should not be as bad as having a foreclosure.

Brian Laughlin