What is a Short Sale?
A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency. (Source: Wikipedia)
Why Your Lender May Accept a Short Sale
While lenders will not be excited at the idea of a short sale, they are aware that a foreclosure is usually a far more costly endeavor. In a market where values are decreasing, it is in the Lenders best interest to liquidate loans as quickly as possible.
Steps of a Short Sale
- Determine the value of your property. I can provide you with a comprehensive Broker Price Opinion (BPO)
- Calculate your estimated closing costs – I can provide you with a Seller’s Estimated Net Sheet
- Calculate the equity in your home. If your closing costs and total of outstanding mortgage(s) are higher than the value of your property you are a candidate for a short sale
- Consult with an attorney and a tax consultant – I can connect you with our team of real estate attorneys and tax attorneys/tax accountants to understand your possible tax obligations
- Compile your short sale package
- List your home for sale
- Get your home under contact
- Begin short sale negotiations with your Lender(s). My team will handle all negotiations and communication
- Obtain approval from your Lender(s)
- Proceed to closing – My team will handle all aspects of the closing process
- Move on with your life!!
The IRS and Short Sales
Many homeowners do not realize that they may be liable for a large tax bill from the IRS after a short sale. Since every situation is different, I can connect you with my team of tax attorneys/tax accountants before you proceed with a short sale.
Your Lender(s) will more likely issue you at 1099-C for the “forgiven” debt and you will need to file IRS Form 982 – Reduction of Tax attributes – click here for the form. This form is used to request a reduction in tax attributes due to insolvency. Our team of tax attorneys/tax accountants will be able to explain the consequences and your obligations.
