There are so many aspects of short sales that as a professional I take for granted. A lot of buyers and seller's have questions about them, so I have decided to go over just a few things about short sales that you may or may not know.
A seller must typically have stopped making payments on the loan. Many times a bank will not even talk to a seller unless they have stopped making payments. This is a sticky situation for us as real estate agents. We do not have the legal or tax background of an attorney or an accountant, so we cannot make a judgement or give professional advice whether or not our client should stop making payments. Always consult your tax and/or legal consultant before making a decision if a bank is pressuring a seller about this.
The depth of the discount on the sale must be substantiated with insight into the current market value. A Broker Price Opinion (called a BPO in the industry) is used to help the lender make a decision about whether or not a short sale is a viable option. A BPO is very similar to a Comparative Market Analysis (CMA) in that it uses current active listings and sales usually within a six month period and within a certain radius of the subject property.
The short sale must first be negotiated between the buyer and seller and then it must be approved by the lender. The lender is not obligated to enter into negotiating or agreeing to a short sale. With the current market climate of properties being taken over by the banks, many lenders are finding short sales are a viable way to prevent properties from becoming an REO property ("real estate owned" by the bank).
Depending on whether or not the property is the seller's primary residence, a seller may be obligated to pay a promissary note and/or pay taxes on a 1099 for the difference of the short sale. Because of the number of speculators in the market over the last four years, many seller's in a short sale may face this situation. The Mortgage Debt Forgiveness Act that was signed into law in December 2007 does help seller's who short sale their primary residence and who have not done a cash out refinance for items other than certain provable home improvements. In other words this is for folks who were caught in the wave and for one reason or another are not financially able to keep their homes and need a way out.
Before considering a short sale it is always important to speak with your banks first. There are many debt reduction and loan modification programs available now. Always start with talking to your bank first and then a professional real estate agent. Thank you for thinking of me when you think of real estate! www.eTemeculaRealEstate.com Susan Manning, Rancon Real Estate 951-551-7790