So, what is a Short Sale, anyway?
This is a question I am frequently asked in today's real estate market, and I have to remind myself that most people truly don't know what it is, unless of course they are active in the market themselves. I am writing a general overview of what is known as a "short pay" or "short sale" to shed a little light on the subject.
So, exactly what is it? Simply put, it is a process where a mortgage lienholder or lienholder(s) will agree to accept less than what is owed on the mortgage debt and will release their lien from the property so that the property can be sold to a new owner. It is a process that is normally undertaken when a homeowner is behind in their mortgage payments and facing foreclosure. It is offered as one of many options to actually having a foreclosure on their credit record.
Sounds simple, doesn't it? Not so fast. There are many factors that play into the process. Where there are multiple lienholders (a 1st, a 2nd, even a 3rd), each lienholder must be willing to accept some portion of the debt owed to them in agreement to release their deed. This can be tricky and depends on many factors, market conditions, property value, amount of debt, etc. Generally, the home is listed on the market at an aggressive price in an effort to obtain offers to purchase the property. Once the offer(s) are obtained, the numbers are processed and the negotiation with the lienholders begins. It is a very tedious and often very frustrating process during the negotiation phase and can oftentimes take up to 90 days to have the lienholders respond to an offer and come to agreement. It will take a lot of persistence and patience on the part of the negotiator.
Luckily, we do have options for short sale specialists who will help make those frustrating phone calls, who will help keep the communications going with the banks, and who will help present all the numbers and documents in the correct format for submittal to the lienholders. This really takes the burden off of the homeowner having to do it themselves during their busy days.
Is short sale always the answer? Sometimes. Sometimes not. Each situation is different, and there are many things to consider. Oftentimes, if the property is sold short by $30,000, for example, then the homeowner is sent a 1099 from the lienholder which they must claim as income and pay income taxes on for the year. Depending on circumstances, you may or may not be exempt from the 1099 process. Alternatively, the lienholder releases the lien and does nothing for a period of time, but has up to six years to come back to you for the deficiency, which may cause big problems down the road.
As you can see, it is not always a good as it seems, and I would advise anyone who is in this situation to thoroughly explore all options they may have when facing foreclosure, and to ask for professional help in getting through the short sale process if that is the option of choice.
Questions? Feel free to contact me for resources and guidance.
Kathy Brown, RE/MAX Alliance www.SellsNorthernColorado.com 970-214-6927
Comments(1)