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.
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.
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.