Behind on your mortgage, underwater and thinking about a short sale for your home? Short sellers beware—your lender may lie. According to recent reports, almost 8% of all home mortgages are now at least 30 days past due; and with more than a million owners who haven’t made a payment in more than a year, the number of sellers attempting a short sale is increasing. With the hope of salvaging some dignity and a little of their credit rating, home owners are turning to short sale “specialists” to help them deal with the complex and often confusing procedures of many lenders.
And many of those who have already begun the short sale process assume that finding a buyer will get them off the hook. What most short sellers don’t know is that the bank may proceed with foreclosure even though they have agreed to consider short sale offers. And, regardless of what a bank’s representative tells a seller, promises are worth nothing until the sale is closed.
Homeowners who are attempting a short sale must understand that whatever can go wrong—will. Murphy’s Law seems to have been written with short sales in mind, and there are several reasons for this.
•The lender may actually benefit from a foreclosure. Never assume anything, regardless of what the bank representative tells you. The risk of foreclosure does not decrease with an agreement to consider a short sale.
•The lender may be so overwhelmed with defaults, short sale requests, and foreclosures that they cannot respond to your request.
•Many have referred to short sale transactions as cases of the right hand not knowing what the left is doing. However, with most lenders, it’s a case of only having one hand; most find it impossible to do two things at once.
And even those homeowners who successfully negotiate a short sale could still owe money to their bank. (See Article) Some lenders are pursuing sellers for the deficiency—the difference between the mortgage balance and the short sale proceeds—and, if the debt is turned over to a collection agency, the owner could be harassed for payment years after the sale. And though some might say otherwise, it is possible to owe taxes on the “forgiven” amount of the debt. There are specific IRS guidelines that sellers must meet in order to avoid paying taxes on the deficiency.
Finally, the best course is to seek the guidance of a “trusted” professional. Be wary of those who make bold promises or guarantees regarding your credit rating, avoiding deficiency judgments and tax liability, or who advise you in legal or financial matters for which they lack qualifications. An experienced short sale professional should be able to provide sellers with a list of references for whom they have successfully conducted short sales.
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The last sentence is the most important - SPECIALISTS should be able to provide a list of successful short sale transactions. I often represent buyers who find a short sale property they like. Before we look too sincerely at the property, it is worth me taking a few minutes to research the past history of the listing agent. I came across one yesterday - the agent has been in business a long time, but she only had 7 closings in the past 2.5 years! Of those, she represented the buyer in 4 and the seller in 3. Not one of the 7 was a short sale transaction. So, she is putting herself out as a professional, but listing a short sale when she doesn't know what she's doing. That seller is going to land in foreclosure and my buyer doesn't need to get tangled up in all of that. There are other houses available that offer a much greater likelihood of closing.
I wish all seller's would get the word - before listing your house as a short sale with ANY agent, ask for the specific addresses of properties that agent handled as short sale transactions, then verify that information. If they are lying to you about their experience in a niche market, can you really trust them to get you to the finish line?