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Questions & Answers

What is a Short Sale?

A short sale is when the bank agrees to allow the homeowner to sell their home for less money than what they owed on the loan.  The bank agreeing to allow that shortage, is known as a “Short Sale Approval”.

 

How do I Qualify for a Short Sale?

Each lender will have their list of requirements.  Many lenders require that the seller prove a financial hardship and others will base their decision on the financial impact to their books.   It really depends on your lender’s criteria – some are easier than others. Some examples of hardship are:  divorce, loss of job or reduced hours, job transfer, additional dependents since the original date of the loan, or it could be as simple as the rate on your mortgage increased since the time of your home purchase. We have found that it is all about how your current economic situation is presented to the bank.  We have helped families who have assets and a good income qualify for a short sale.  In our presentation to the bank, we thoroughly explain that their good income today is lower than what they earned when they originally got the loan, along with other important details.  We all know that it is ultimately up to the bank to say YES or NO, but based on our extensive experience with so many banks, we are able to give you an idea of how easy or difficult it is to work with your bank- click on the Bank Relationships tab to see what banks we have already successfully worked with.

For more information on how we can help you with a Short Sale or other options, please give us a call or send us an email so we can set up an appointment to sit down with you to discuss your options and evaluate if a short sale is the right option for your family.

 

When Can I Buy Again?

Fannie Mae allows new financing for a home loan after twenty four months from the date that your short sale home closes. However, the qualifications for getting a new mortgage can be stricter. For example, to get a new mortgage to purchase a home within two years, you may be required to have a 20% down payment. If 20% is too much for you, you can wait an additional year and then apply for an FHA loan, which will only require a 3.5% down payment. Another option is a loan through the Veterans Administration, if you were or are currently enlisted in the military

Each situation is individually evaluated.  If you can demonstrate the sale of your home was due to “extenuating circumstances,” such as a divorce, health problems, job loss, relocation, etc., then Fannie Mae may allow financing immediately after the two year waiting period is up.

There are also private moneylenders that are willing to make borrowers a new loan after a year from the closing of a short sale.  These lenders will qualify you based on your current income, along with your assets.

 

How will a short sale affect my credit?

A short sale will temporarily damage the seller’s credit score. The negative score will remain on your credit report for a few years, and may also lead to a higher interest rates for a new loan.  When you short sale your home, your credit score will be impacted by 60-200 points, especially if you were delinquent on your mortgage prior to the closing of the short sale. Although these may seem like big consequences, they are by far less than letting the property go into foreclosure.  If the property is sold through foreclosure, then the scores can be impacted from 200-300 points, or more.  Be aware that  a bankruptcy will be on your record for 7 years and forever you will be asked, “Have you ever filed for Bankruptcy?

If you work on rebuilding your credit after a short sale, then you will have the opportunity to actually make your credit score higher than before the short sale. I had one client, who had a million dollar loan, tell me that his credit score went up 120 points after the short sale.  It is important to emphasize that we are highly qualified professional real estate agents, not credit repair counselors. Here is a link (sandiegocreditsolutions.com) to credit repair person in San Diego with a great track record of success.  This is just one person that we know.  We recommend that you take the time to search on your own.

 

Who Pays for my Realtor?

In every short sale that we have done, the homeowner’s bank has paid for the Realtor’s commission. Therefore, this is an expense that you do not have to worry about. If you list your home with us, there is no charge for our comprehensive and award winning service. Not in all cases, but in many cases, we have been able to negotiate to have the holder of 1st loan, pay for other outstanding loans, taxes, delinquent HOA fees, etc. We can give you a better idea of what can be negotiated, on your behalf, when we meet with you and review your situation. Our goal is for you to end up with a much better financial situation than before your short sale.

 

Can I get Incentive Money from the bank doing a Short Sale?

The answer is YES. There are Banks that are currently paying up to $40,000 of incentive money on the day of close of escrow. Most homeowner’s are receiving between $3,000 and $40,000. Why would a bank pay that much for a person to short sale their home, even when the bank is already going to take a loss on the sale? It is because the lenders have already categorized your loan as a high risk loan and have calculated that they will have a high cost to complete a foreclose, which will by far exceed the cost of a short sale. It works out better for everyone to cooperate and make it a win-win for all through a short sale.  The bank also wants to avoid the potential delay of a bankruptcy, the risk of the property being damaged and deteriorated, along with the risk of the property being stripped.  We can help you get to that Win-Win situation with your bank.  It starts by you calling us or sending us an email so we can schedule a time to get together to solve your situation.

 

Why is now the Best Time to Short Sale?

Significant Financial Impact!!! Unless the Mortgage Debt Relief Act is extended, those that short sale their homes after December 31, 2012, may have to pay the taxes on the difference of what they owe on the home and what they sell it for; this difference also applies to foreclosures. Therefore, if a person sells their home in 2013 or later, their bank will be sending the homeowner a 1099 form for the difference. In other words, if the homeowner has a $100,000 shortage, even if the bank approved the short sale, the homeowner could end up with tax bill of approximately $30,000, depending their taxable income and other variables. Please consult a certified public accountant for details.

Currently, if you are a homeowner whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt, see Mortgage Debt Relief Act. Normally, debt forgiveness results in taxable income. But however, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to two million dollars of debt forgiven on your principal residence.

I truly hope the Tax Relief Act is extended, but if it does not, it could significantly cause major financial impact for years to come.  This will add even more grief on those families that are already in dire straits. Imagine a $30,000 to $60,000 bill from the IRS on top of losing your home. In the past, they have phased some stimulus or relief funds out over time, like holding firm on the expiration date, but allowing anyone who was already in escrow to finishes out their sale or purchase by an extended time. This may or may not happen, but I would rather be safe than sorry, wouldn’t you? Therefore, if you are considering a short sale, schedule an appointment immediately.  Don’t wait until it is too late!!!

 

 

 

Steve Cushman, CPA | Bonk & Cushman

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