Short Sales

  1. Definition of a Short Sale 

• A homeowner is “short” when they owe more on their property when the combined sale price, commission and closing costs exceeds the current market value.  
• A short sale occurs when a negotiation with your lender or lenders to accept less than the full balance of the loan at closing. A buyer closes on the property and the property is “sold short”.

2. What are the Consequences of a Short Sale?a. Cancellation of Debt Tax Liability“Phantom Tax”

• Mortgage Forgiveness Debt Relief Act of 2007
• Special IRS Section

b. Deficiency Judgment

• Lender Collection Rights

c. Other Issues3. Mortgage Forgiveness Debt Relief Act Of 2007

• Originally HR3648
• Prior to passage any debt forgiven was “cancelled” as was required to be claimed as 1099 income
• Signed into law December 20, 2007

4. MFDRA Details, Phantom TaxJanuary 1, 2007 to January 1, 2012

• Eliminates Phantom Tax
• Debt must have been incurred acquiring a principal residence
• Cancelled debt up to $2,000,000 is eligible
• Sets rules for determining the allowable amount for the exclusion for taxpayers with non-qualifying indebtedness and taxpayers who are insolvent

5. Deficiency Judgement

• In 100% of foreclosures homeowner is exposed to a Deficiency Judgment
• In some Short Sales lender waives right to Deficiency
• In almost all cases a short sale will result in lower possible deficiency judgment

There are Three Must Have Qualifications for a Short Sale...1. Financial hardshipA lender will want to see that you are experiencing a “financial hardship”. A financial hardship is, A material change in-between the day the mortgage was signed and today that has affected the borrower’s ability to pay. Financial hardships can be issues such as:

• Mortgage Payment Adjustment
• Job Loss
• Too Much Debt
• Business Failure

2. Monthly Shortfall Your lender will want to see that you cannot afford to pay your mortgage. A financial worksheet is essential.The equation is: Total Monthly Income – Total Monthly Expense = Monthly ShortfallEven if you are not currently experiencing a monthly short fall, you may qualify for a short sale if you will have a short fall soon due to a payment increase or pending layoff.3. Insolvency In order to qualify for a short sale, you cannot have the means to pay down the mortgage. The lender will want to see that you owe more than you have in cash (known as being insolvent). You do not have to be completely broke.  The Short Sale ProcessOwner Involvement

• Complete or provide all necessary documentation
• Keep property presentable and ready to sell
• Be available to communicate with your lender if necessary

Hire a CDPE - Certified Distressed Property ExpertA CDPE or Certified Distressed Property Expert, is one of over 10,000 agents nationwide who negotiate hundreds of short sales weekly. A CDPE member under goes an extensive two day training course, has access to a support system and a complete system to give you the best chance at successfully avoiding foreclosure.Here at Weichert Realtors – Neves & Cashman Realty a team of agents is ready to serve you with all your real estate needs including short sales.For a confidential analysis of your needs please call Marie Cashman at 508-990-7775 or complete and submit the form to the right of the page.