ourhouse101

So you have to move and cannot get an acceptable offer on your house. Say you get an offer that is not acceptable to you or your bank but you must accept it because it is the only one. Welcome to the world of Short Sales.

Short Sales 101:
1. It may be that you paid too much money for your house a few years ago and now you cannot sell it for anywhere near what you paid for it. This is not the Lenders’ problem and may not get you consideration for a short sale.

2. A short sale is mostly about hardship and you proving that you are in a hardship situation so the Lender will consider taking less than what you owe to release the mortgage.

3. You will need to start communication with your lender and request a short sale. Selling the house on a short sale is so much better for you because you do not destroy your credit as with a foreclosure. The lender spends thousands and thousands less on legal fees for a short sale as opposed to a foreclosure so in the long run a short sale is better for them too.

4. Typically the lender will send you a packet to begin your search for all of your documentation. You will need to fill out whatever forms they have for your as well as providing copies of: 2 years of tax documents, pay stubs, any statements from bank accounts or asset accounts such as IRAs, 401Ks, and other such documents. You will need to create and provide them with a budget that you are presently living on. Last but not least you will need to prepare your hardship letter. It needs to be a 4-hankie letter too about why you cannot pay what you owe. Remember that it is their job to protect the assets of the parent company and they do not like to part with any part of what is owed to them, even if a short sale could save the lender thousands and thousands of dollar in avoided attorney fees for a foreclosure. As I understand it, your letter should be about: job loss, family illnesses, a death in the family of the breadwinner or other terrible human tragedies. In my community we had hundreds of homes that were destroyed by a flood this past summer, Cedar Rapids, Iowa, and even a flood is a tough one for them to do a short sale on because they hope the insurance will fix the house and you will move back in. (Except where the land cannot be built on again because it is now part of the new canal, levy or road to reach these. Believe me, this is a tough nut to crack.)

5. Be ready to hurry up and wait and then wait some more. Remember, you are asking them to give you a big break and they typically do not want to do this as it goes against the whole idea of lending. They say it takes 30-90 days but be prepared to spend 6 months or longer on it. I had one that took a full year. (The couple needed to leave town for jobs and this was only a marginal hardship according to the bank.)

6. Unfortunately you have to stop paying the payments on the house or clearly you are not in a hardship. Say you want to protect your credit, well your credit will take a ding on this no matter what. If you figure out how to pay the house payment while you are waiting for the short sale negotiator to let you settle with them for a reduced amount, you are shooting yourself in the foot. If you steal the money from your kids or your retirement plan, you are telling the lender that you can do this forever until your “hardship” goes away. I think some lenders see it that if you are not 6-9 months behind on your payments then you are not in a hardship. Sorry to say, but if you attempt to pay everything on time, then they do not think you need a reduction in your mortgage payoff.

7. I don’t think it can be stressed enough. A short sale is by far cheaper for the lender and should be looked upon as a major benefit to them. If they have to spend $30,000 on attorney fees for a foreclosure, certainly cutting you a $10,000 deal is cheaper.

8. Last, you could be susceptible to getting a 1099 statement at the end of the year where you would be required to pay taxes on the benefit that accrued to you for the short sale. You need to find this out from your lender. My understanding is that Congress got rid of this rule but it is unclear yet. Aren’t things bad enough, first you have to give up a house that you love, then you make nothing on it and then you get kicked when you are down by the tax system. Go figure. I have contacted my legislators abouit this and I do believe this has stopped but I just heard of someone getting a 1099 for a short sale. Go figure. Take care, be well. Susan

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