Frequently Asked Questions
When Can a “Short Sale” Be Used?
When the Owner/Seller of the house is at least 1 month behind in payments, although we recomend you contact us as soon as you realize you can no longer afford the mortgage.
What is a Short Sale?
It is when a Buyer offers to buy the house for a price that is less than what is owed on the house, and both the Owner/Seller of the house AND the bank agree to it.
Why Would the Owner/Seller of the House Agree to a Short Sale?
Since the Owner/Seller is behind in payments, the house has become a financial burden and possibly an emotional burden to the Owner/Seller. So the Owner/Seller is looking for relief from the debt, and relief from the financial and emotional distress. Also, one of the best reasons is that the short sale prevents the Owner/Seller from getting a foreclosure on their credit report.
Why Would the Bank Agree to a Short Sale?
Because foreclosure is an expensive process for the bank. Sometimes, the short sale can save the bank money in the long run. Also when a bank has a foreclosed property, it limits the amount of other loans they can make. So it looks bad for a bank to have too many foreclosures on their books at one time.
Is the Owner/Seller Allowed to Make Any Profit from a Short Sale?
No. Since the bank is basically agreeing to lose money, by taking an amount less than the loan payoff, they have a rule that the Owner/Seller is not allowed to make any profit either.
Does this Cost the Owner/Seller Anything?
No.
Can the Bank Sue the Owner/Seller for the Difference Between the Loan Payoff and the Amount of the Short Sale?
Since the bank must be in FULL AGREEMENT with the amount of the short sale payoff, this is usually not a problem. In fact, our offer written to the bank requests that they will not sue for the deficiency judgment. A deficiency judgment usually occurs as the result of a foreclosure action, in which there is NO agreement on the banks part with the Owner/Seller. So in a way, a short sale can actually be a good way to avoid a deficiency judgment.
How will a short sale affect my taxes?
According to the IRS, if you have reached a compromise or settlement with a creditor/lender agreeing to release you from any further obligations regarding the repayment of a debt, a creditor/lender may report this as "cancellation of debt" income.
Your lender may choose to "write off" all or part of the debt it claims that you owe, and report it as a tax loss to the IRS using a 1099-C. In most cases, you may be able to avoid taxation.
The IRS recognizes five situations where a cancelled debt may not have to be reported as income.
1. Insolvency - your total debts exceed your total assets at the time your debt was settled or deemed non-collectable
2. Bankruptcy - the debt was already discharged through a bankruptcy proceeding
3. Indebtedness due to certain real property business losses
4. Indebtedness due to a qualified farm expense
5. Discharge of your debt was treated as a gift (extremely rare)
Most of our clients fall into the insolvency category. If you are insolvent, you must inform the IRS by completing IRS Form 982: Reduction of Tax Attributes Due to Discharge of Indebtedness and include with your individual tax return in the year you receive the form 1099-C.
Disclaimer: This information is provided for your information only and is not intended to be a tax or legal opinion. You should confirm the implications of debt discharge with your tax advisor.
How Long Does the Short Sale Process Take?
It depends on how easy your bank is to deal with, and how quickly they respond once we contact them. The entire process could take 7 days, 30 days, 60 days, or longer. Again, it just depends.
Do I need a real estate short sale?
Do you owe more on your property than what you could sell it for, especially after real estate commission, closing costs, late payments, interest, etc?
Have difficulty covering your expenses each month?
Don’t have money in the bank to cover the difference of what you could sell
your house for and what you owe the bank?
If so please contact us regarding our short sale services. Contact us with any questions by phone at: 303-459-6468
Premier Properties
Phone: 303-459-6468
Fax: 303-362-7895
Copyright 2007 Premier Properties. all rights reserved.
