Q: I want to sell my home for less than the mortgage amount. What is my first step?
You will need to contact your lender to see if they will consider allowing a short sale. A lot of our callers at the Real Estate Hotline (www.iasfinancial.com) have found it pays to get help from a third party who will help you negotiate with your lender through government sponsored programs such as:
HopeNow: http://www.hopenow.com/
Hope for Homeowners: http://portal.hud.gov/portal/page_pageid=73,7601299&_dad=portal&_schema=PORTAL
Help for Homeowners: http://www.hud.gov/offices/hsg/sfh/econ/econ.cfm
Meet with a HUD Counselor in your area: http://www.hud.gov/offices/hsg/sfh/hcc/fc/
Q: Will there be forms I need to fill out to do a short sale?
Yes. If your lender agrees to consider a short sale, they will most likely send you a "short sale package". There will be forms and requirements for you and your realtor to complete. My post at http://activerain.com/blogsview/1055648/The-Short-Sale-package gives a detailed description of the components of a typical package and how to execute them.
Q: My property needs repairs, can I still apply for a Short Sale?
Yes. Your lender may be more motivated to approve a short sale on a property that needs repairs.
Q: Are there Tax Consequences to the Seller when they do a Short Sale?
In the past, the Seller was sometimes required to declare the difference between the loan principal and the amount the bank received as income on their tax forms, and pay tax on it. However, in November 2007, a law was passed that changed this. Effective January 1, 2008, "Forgiven Mortgage Debt" (the difference between the principal and the amount the bank received) can be excluded from taxable income. There are restrictions, though. For example, the house must be a principal residence (not a summer home, vacation house, rental property, etc.).
Q: There are multiple mortgages on my property. How will that work?
You can still be approved for a short sale but it may be a little more difficult. I recommend that you start by negotiating with the first mortgage holder since they may have specific instructions for negotiating with the subordinate lenders. The second (or third, etc...) mortgage holder will typically be more motivated to work with you because if the first mortgage holder forecloses - all subsequent liens are wiped out.
Q: Do I have to miss a payment on my mortgage to get considered for a short sale?
No. However, keep in mind that while you do own the property - the lender owns the mortgage. Therefore, the lender can make the rules (within the legal guidelines of course). Some lenders guidelines require the borrower to be behind on payments before they will consider allowing a shortsale.
Q: How long do short sales take?
That depends on the lender and also on how long it takes all the parties involved to do what they need to do. I have listed short sales and completed the process within 8 weeks. On the other hand, I have submitted offers on properties that we are still waiting to hear something on months later. It is crucial to to work with an experienced agent who understands the short sale process and is willing to put in the extra effort to get the job done.
Q: I am facing foreclosure. Is a short sale my only option?
No. At the top of this post, I listed several organizations that will help you explore other options. Alternatives include payment deferment, loan modification and giving a deed in lieu of foreclosure. Contacting your lender or one of these third party negotiators should be your first step.
Q: How long does it take for the lender to foreclose?
That will depend on the laws for foreclosure in the state the property is located in. The timelines can vary greatly from state to state. It also depends on how agressive your lender is. In Florida, foreclosure can take up to a year or longer.
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