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Selling a Short Sale to the Seller

By
Services for Real Estate Pros with S.P.O.C.H. a 501c3 Charitable NP

Why would a Homeowner even consider a short sale?  What's in it for them?

We know that one of the conditions of short sale approval, a non-negotiable provision, is the Seller receive ZERO PROCEEDS from the sale. So if the Seller gets nothing, why would they agree to do it? 

Why would they go through all that trouble when it would be just as easy to file bankruptcy and walk away, or, deed back the house to the bank and walk away, or simply walk away, closing the book on that portion of their lives....

What could motivate the Seller to work toward a goal that would result in no monetary reward?  It would have to be something worth more than money.  So, the question is,  "What's worth more than money?"

When I meet with a distressed homeowner for the first time, we cover a lot of ground in a short time. If I've done my job, the barriers are down and truth is on the table. When the meeting draws to a close, I am frequently asked, "Can you keep this (the foreclosure/Sheriff's Sale) from the newspaper? I would just die if my mother/father/sister/brother/neighbor/friend/co-worker found out!"      

To a family in a heightened emotional state, realizing their continued homeownership is not an option, what's really important?  Self Respect?  Dignity?  Integrity?  Reputation?  Pride?   Having some control?  Are these feelings worth more than money?  You bet they are!

The distressed Homeowner, after all measures to save their home have failed,  must be made to realize their remaining choices are limited to allowing their home to be auctioned off at a public sale, a sale anyone could learn about, attend, and possibly become the winning bidder... then endure further humiliation by being subject to a forcible eviction.... Or,  the homeowners can act responsibly, participate in a proactive process to mitigate potential damages, and maintain some degree of control by moving on their own terms.  

After accurately painting a factual, worst case scenario (public auction/forcible eviction/financial consequences) the real estate broker must articulate to the homeowners that he/she is confident that a successful short sale will protect their future creditworthiness, and imply that by acting responsibly and participating in a viable solution...they will experience a renewed feeling of self worth.

          What's worth more than money?  Self respect.

 preforeclosure listing workshop for brokers

 

 

 

Tony and Suzanne Marriott, Associate Brokers
Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ
Coldwell Banker Realty
How about the tax consequences of a short sale to the recipient of the 1099?  How does the IRS treat this?
Feb 27, 2007 12:43 AM
David Petrovich
S.P.O.C.H. a 501c3 Charitable NP - Oakhurst, NJ

"How about the tax consequences of a short sale to the recipient of the 1099?  How does the IRS treat this?"

 

(this post was created prior to The Mortgage Foregiveness Debt Reloief Act of 2007)

Good question, Tony.  When the mortgagee forgives debt, it creates a tax event requiring the mortgagee to issue an IRS form 1099 to the Seller in the amount of the forgiven debt.  The IRS treats forgiven debt as taxable income.  However, most but not all sellers who benefit from forgiven debt will find the income arising from the preforeclosure short sale's forgiven debt is exempt from tax. 

Many mortgagees forgiving mortgage debt via prefoeclosure short sale don't bother sending a 1099, and are subject to a nominal fine for failure to issue the document. Or, they'll send it to the IRS, and NOT to the former mortgagor.  Most sellers are ill-informed, and think if the mortgagee doesn't issue the 1099, they are off the hook. This is where many short-sellers run into problems.  The taxpayer bears the responsibility for reporting the 'income' as he or she would be required to report any income, irrespective of the receipt of a 1099.  Failure to report the income arising from forgiven debt can result in additional interest, penalities, fines, etc., even if the 'income' would have been deemed exempt from tax.

By properly reporting the income, then treating the income as exempt from tax can save problems resulting from an audit.

There are some CPAs who provide low cost services, or pro bono advice to financially challenged taxpayers.

 

Feb 27, 2007 12:56 AM
Toya Condelee
Exit Realty Results - Carson, CA

FINALLY SOME REAL ANSWERS!

I've been hearing the buzz about short sales here in my market, but havent' been able to get a CLEAR picture of how they actually work! Thank yooooou!!! I'm gonna check out the preforeclosure bootcamp too and report back my findings!

this blog is worth more than money to me!

Mar 18, 2007 08:58 AM
Dan Allred
Allred Realty - Thousand Oaks, CA
DRE#01761967

david,

Great post and thanks for the info.

Mar 18, 2007 07:24 PM
Bill Clemente
Dudum Real Estate Group - Walnut Creek, CA
  Thank you... It just happens to be the situation that my client is facing... I apprieciate having this info as a reference point.
Mar 19, 2007 06:36 AM
Elizabeth Weintraub Sacramento Broker
Elizabeth Anne Weintraub, Broker - Sacramento, CA
Put 40 years of experience to work for you
Put "short sale" into Google. You will find plenty of answers for free from qualified experts. You don't need to attend a high priced seminar. Good grief, people.
Jun 12, 2007 01:52 PM
Anonymous
Charlie Brown

$399 for the broker and 4 agents.  Two hours with a 20 year short sale vet.  Outrageous!

Jun 12, 2007 02:06 PM
#7
Toya Condelee
Exit Realty Results - Carson, CA
ouch! 
Jul 17, 2007 10:22 AM
Lanre-"THE REAL ESTATE FARMER" Folayan
Samson Properties - Bowie, MD
I don't make promises.I deliver results.SOLD HOMES
Great post. Thanks for giving me info on short sales. I am still trying to learn about this particular topic.
Jul 27, 2007 03:22 PM
Linda M. Cataldo
Dock Street Realty - Myrtle Beach, SC
Beach Destinations Realty Myrtle Beach
A realtor in our office brought up the topic of a short sale and I asked the same question.  Why would anyone want to do that.  Thanks for clarifying the situation for me...
Aug 24, 2007 05:52 AM
Sal Poliandro - Helping People Win
RE/MAX Properties - Ridgewood, NJ
Broker Associate

This blog is very interesting. People have a lot of questions about short sales. They are not for everyone. There was an article on the front page of the Real Estate section in January 2008. We have had good success in helping people get them negotiated. They take a lot of time.

Feb 04, 2008 11:13 PM
Mike Martell
Gateway Mortgage Group - Glendale, AZ
Mortgage Loan Originator in Arizona NMLS#1290123

We better all get informed on this subject as it is going to get larger yet, in my opinion. I am learning everything I can since I have had several clients contact me in need of a short sale. I would say it does look a little better than a foreclosure in the lending world, even though it show as a deed in lieu.

Mar 26, 2008 01:56 AM
David Petrovich
S.P.O.C.H. a 501c3 Charitable NP - Oakhurst, NJ

I've never seen a short sale reported as a DIL, but that doesn't suggest it can't happen. As of now, there is no standard methood of reporting a short sale to the credit reporting bureaus.

Mar 26, 2008 01:59 AM
Lucy Doroshenko Slobidsky
NP DODGE Real Estate - Omaha, NE

Excellent and informative blog on short sales.

May 22, 2008 02:47 AM
Anonymous
Anonymous

Great info. Thanks

Jun 13, 2008 03:28 PM
#15
Sal Poliandro - Helping People Win
RE/MAX Properties - Ridgewood, NJ
Broker Associate

Really a great post. The buzz over short sales keeps growing and growing. Please don't forget the role of a competent, experienced Realtor in negotiating on behalf of the homeowner.

Sal Poliandro - Shortsale Specialist

Jun 20, 2008 03:45 PM
Wendy Hodges
Re/Max Southern Shores - Myrtle Beach, SC
Davis & Hodges

After several full-price offers and months of work, it looks like I have one short sale closing. Eight months of negotiaions- these keep you on your feet 24/7.

Sep 30, 2008 01:16 PM
Anonymous
Eric van Auken

Hello all...came across this Blog in a google search.  I have completed over 100 short sales and consider myself an expert in closing them!  I would be happy to negotiate any shortsales you may have.  Please feel free to contact me at eric@homesmartnj.com  or visit my site at www.homesmartnj.com 

 

 

Mar 10, 2009 03:47 AM
#18