5 Tips for Selling a Home in a Successful Short Sale
Short sales are a last resort for home sellers trying to avoid foreclosure. For struggling borrowers, a short sale could really offer the only chance to avoid foreclosure and all of the financial repercussions that can go along with it. While short sales still ding a borrower’s credit, it can be better financially to sell a house in a short sale than to go through foreclosure.
That being said, short sales are still stressful, time-consuming and complicated. Here are five tips to help you successfully navigate the process of short selling a home.
- Pick your short sale team. Like the purchase of a home, a short sale is not a process you should go through alone. You should work with a team of short sale experts, which includes a real estate agent, real estate attorney, and your accountant. Interview several people for each position on your team and evaluate them carefully. Remember that you’re placing some of your financial future in their hands. Pick the best you can afford.
- Understand the financial implications of short sales. What happens to your mortgage once a short sale is over depends on several factors. It's important for borrowers to fully understand whether the lender has agreed to waive the mortgage deficiency from the sale price or if the balance of the loan that is left after the sale will be due. You can try to negotiate your way out of a deficiency or try to avoid a deficiency judgment by pursuing a short sale through the Home Affordable Foreclosure Alternatives program, or HAFA. Either way, there will be a ding to the home owner’s credit score.
- Know the tax implications of short sales. First, even a non-distressed sale of a home must be included on your tax form. Though it’s unlikely you’ll make a profit from a short sale, if any unpaid amount of your mortgage is “forgiven” by your lender, it may be considered income under federal tax rules. Ask your attorney or accountant whether you qualify to exclude that amount as income on your tax returns under the Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act. Also ask if you’ll be required to report amounts “forgiven” by other lienholders, if applicable.
- Get your documents in order. There’s going to be a lot of paperwork for you to gather; documents to satisfy your creditors and mortgage lenders may include your listing agreement, a hardship letter explaining why you need to do a short sale, proof of earning, and copies of your federal income tax returns. Your short sale team can help you identify all the documentation that you may need. Beyond the documents you provide, make sure that any promises or statements by your bank or lender(s) are received in writing.
- Anticipate demands, expect delays. It may take weeks or months for a lender to make a deicion on whether to allow you to sell your home in a short sale. It could take even longer if you have more than one lender or lienholder. Once the short sale offer is made, it could take even more. During all of this time, there may be requests for additional paperwork, counteroffers and more reasons for delays. Once your home is successfully sold in a short sale, though, the wait and all the delays will have been worth it.
Short sales are not fun, but they are better financially and more easy to recover from than going through a foreclosure. If you are facing foreclosure or considering selling a home through a short sale, these tips may help you.