IS A SHORT SALE RIGHT FOR YOU?
August 6th, 2009
Literally every day I have someone ask me if a short sale is right for them and my question usually starts with, “It depends.”
Too often people think this is the quickest way to avoid foreclosure however, since there may be tax consequences on the “phantom income” as well as the potential liability for repayment of the outstanding loan balance, consulting an attorney and accountant in advance of any conversation with your lender is highly recommended.
As different as your financial situation may be, so are the processes the banks who hold these mortgages use in addressing these outstanding loans. Some lenders are willing to forgive the outstanding debt while others such as Bank of America will wait until the property closes as a short sale, then discuss the repayment for all or part of the outstanding loan.
If you have valuable assets, it is important to note the banks may see these assets as vehicles to be used in satisfying the outstanding balance on the mortgage. It is for this reason seeking both legal and accounting advice is imperative before entering into negotiations with your lender regarding the possibility of selling your home through a short sale.
Another point to consider pertains to any “second” mortgage or “equity loan” taken against the property. I have heard of several instances where information given on these loan applications was “less than accurate.” Many times job history and salary structure was intentionally “falsified” to obtain the loan, and that “false” information could come back to bite you in your short sale request.
Since you can’t just sell your home “short” of what is owed on the mortgage, a financial hardship letter must be submitted along with two years worth of pay stubs or tax returns. If there is an inconsistency between your tax returns and the information you provided at the time you were applying for an equity loan, you could put yourself in a position where you would have committed fraud, and this is a criminal offense. At that point it would be better for you to go to foreclosure than it would be to put yourself in a legally compromising position by requesting a short sale in order to sell your home.
While short sales are not as damaging to your credit rating as a foreclosure or bankruptcy, seeking professional advice in advance is highly recommended prior to entering short sale negotiations with your lender. Once given the “O.K.” to proceed by council, seeking a Realtor with vast experience selling short sales and bank owned properties is equally important as there are many nuances to consider during this process that can take many months to bring to a closing. Knowing your options in advance will help you make sound decisions in limiting your financial risk.
Entry Filed under: Uncategorized