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The Short Sale Pitfall
To qualify for a short sale, the homeowner must occupy the home and be able to prove economic/financial hardship. The lender may either forgive all or a portion of the debt and release its mortgage lien on the property, therefore allowing the sale to occur or the lender can agree to release its mortgage on the property and not forgive the deficiency, but have the seller sign a new promissory note for the balance or, in the alternative, the lender can do a combination of the two. The effect of the short sale on the homeowners credit score is less damaging than that of a foreclosure.
The short sale is often agreed to by a bank or mortgage lender to cut their loses and prevent the more expensive foreclosure of a property. Ideally, the sale is supposed to he a ‘win-win’ for the seller, buyer and bank but that may not necessarily be true . . . . there can be many pitfalls and lots of frustration for all involved in this process.
Short sale transactions are processed by a the lender’s Loss Mitigation department. The sales often require the approval by investors to move forward which slows the process. Possible objectors to short sales include tax liens and mechanic's lien holders. It is even possible for junior lien holders to prevent the short sale. All paperwork must be complete to avoid being placed at the bottom of the pile waiting for the rest of the info required. It can take weeks even months for the lender to give consent for the seller to qualify for a short sale. Not only will the lender be taking a reduced amount for the outstanding principal of the loan but also incur not other costs of the transaction such as escrow fees, title charges, and brokerage commissions.
The lender will look to a broker to provide a price opinion by examining the condition of the house and the market value of comparable properties. Just because the owner of the property is agreeable to an offer made doesn't mean that the lender(s) will be. The lender is not obligated to accept any offers made.
The short sale is a time consuming, lengthy and complex process. Although the short sale property may be a ‘good deal’ if the sale actually transpires, the short sale is not for a buyer who needs a property immediately. Before beginning the short sale course of action, sellers should seek professional tax or financial advice. The seller may be liable for income taxes on any deficiency that the seller’s lender forgives after the short sale has occurred. The seller’s lender may not forgive any of the debt deficiency, and the seller then will be liable for said deficiency amount after closing.
Buyers and sellers need to ‘do their homework’ to see if the short sale situation is right for them.
0 comments • Gary and Claudia Scott - Scottsdale, AZ Real Estate • September 29 2008 10:25PMComments
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