Buyer: I've Got A Question; What's A Short Sale?
Recently one of my Buyer's emailed with that question. A family member living in a different city in Minnesota is considering options regarding their home and mortgage situation. Mortgage amount likely exceeds value, and expenses have risen while income has decreased. Sound familiar?
Answer: A short sale is when you owe $400,000 on your mortgage, and after you sell the home you have less than $400,000 available to pay the bank off. Your options are, pull the extra cash out of your pocket (or 401K, SEP, etc), sign a note, or short the bank for the difference. The bank will file a 1099 form with the IRS, declaring a loss, which the IRS will consider as a gain for the borrower. IRS has waived tax liability on this for the last few years, but that may change. The homeowner should contact their lender to ask for the requirements or criteria for a short sale. For example, they will likely need to site a hardship, such as a divorce, illness, or job loss in order to qualify for short sale consideration. Call the 800 number and ask for the Short Sale Department.
Buyer: That doesn't sound right. We pay what we owe. Is there a way to re-structure things so they can keep the house and pay off the loan?
Answer: Yes, there is a Mortgage Modification option, and they may agree to rework the interest rate and monthly payments so the payments are more affordable. Again, they have criteria for considering a Mortgage Modification, and that usually includes a hardship, and both the Modification and Short Sale both require full financial disclosure. The Lander looks at the borrowers income, accounts, expenses, etc. If you would like to give them my number, I would be glad to talk to them, and start with a Market Analysis to determine where their home value comes in.
Buyer: Do they ever reduce principle balance?
Answer: I have not seen it done yet, but the Government is suggesting it now. You may have a better chance if the lender is local, and the loan in-house. They should ask anyway.
Full service sometimes means picking up the phone and having an involved conversation about something that is beneficial to a third party, a family member, a friend or co-worker. One question often leads to three more, and a follow-up. Helping people make informed decisions about complex issues is, today, more important than ever before! If I do have direct contact with the homeowner/family member, I will recommend they consult with an attorney and a tax professional concerning issues related to their credit, financial and tax liability, and bankruptcy.
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