short sale (mortgage, bad credit, lawyer)

[bentlebee]

Can some one explain what and how a short sale works. I keep getting different explanations. Also will the seller get bad credit because of it, or is it a good option?
Also how long will it take to close on a short sale, maybe some one who has experience can help me answer these questions?
Thanks.

[TampaKaren]

There is a really good thread on the Real Estate Professionals forum covering much on this same subject. Do a search on short sales.

[bentlebee]

Thanks and will look at it. I did some research but hope for responses from people who have done a short sale.

[deckardc]

I personally have never done a short sale and probably wouldn't.
It doesn't hurt your credit however it can leave you with a huge income tax bill. If you are already struggling financially to pay for the house, how are you going to pay the taxes?

How long it takes to close on the short sale depends on the stipulations set forth by your lender and how long it takes to find a buyer. The "short" in short sale refers to being short the money on the payoff balance of your loan not a short period of time.
Here is part of a post I left on another thread. It is a brief, hypothetical explanation:

Let's say you owe $220k on your house. You can't afford your monthly payment anymore so you put it on the market where it sits for 10 months. You are getting desperate so you get your lender to agree to a short sale. They agree to the cut rate price of $180k. A buyer comes along and snaps it up. The bank doesn't have to deal with a foreclosure and it gets your property off it's books. You get out of a money pit without having to suffer a foreclosure. Your buyer got a bargain. Everyone is happy until you get your IRS bill. That $40k the bank magnanimously wrote off is considered income and you get stuck paying income taxes on it. Short sales have become very popular, unfortunately many people jumped at them without realizing that they would be on the hook for the taxes.

[gypsychic]

Originally Posted by deckardc

I personally have never done a short sale and probably wouldn't.
It doesn't hurt your credit however it can leave you with a huge income tax bill. If you are already struggling financially to pay for the house, how are you going to pay the taxes?

How long it takes to close on the short sale depends on the stipulations set forth by your lender and how long it takes to find a buyer. The "short" in short sale refers to being short the money on the payoff balance of your loan not a short period of time.
Here is part of a post I left on another thread. It is a brief, hypothetical explanation:

Let's say you owe $220k on your house. You can't afford your monthly payment anymore so you put it on the market where it sits for 10 months. You are getting desperate so you get your lender to agree to a short sale. They agree to the cut rate price of $180k. A buyer comes along and snaps it up. The bank doesn't have to deal with a foreclosure and it gets your property off it's books. You get out of a money pit without having to suffer a foreclosure. Your buyer got a bargain. Everyone is happy until you get your IRS bill. That $40k the bank magnanimously wrote off is considered income and you get stuck paying income taxes on it. Short sales have become very popular, unfortunately many people jumped at them without realizing that they would be on the hook for the taxes.

Would it be better to just foreclose in that case, assuming one doesn't mind the bad credit from it?

[deckardc]

Originally Posted by gypsychic

Would it be better to just foreclose in that case, assuming one doesn't mind the bad credit from it?

I think it depends on the situation.
If you have a steady job, with decent pay, and you go through a short sale that leaves you on the hook for say anything less than $50k, it might be worth avoiding foreclosure if you can swing the tax payments. The IRS will usually set up a payment plan and that would probably be best IF you could manage the payments. That's a big IF. Most people who are in the financial situation that they have to resort to a short sale are usually not able to come up with the extra money monthly for the IRS.

If it is for a much larger sum of money and/or there is no way you can manage the payments, foreclosure may be the only option. If you aren't too concerned about how it affects your credit (in my opinion, many people in that situation aren't) then it would be a way to wipe the slate clean and you wouldn't have to come up with the monthly tax payment.

We know someone who bought way beyond their means 3 years ago, got a terrible interest only loan, got slammed with a $7,000 a year insurance bill from Citizen's, and is now facing foreclosure. They contemplated a short sale but the difference between what they owed (they weren't paying on the principle) and what they would be selling the house for was a discrepancy of $90,000+. There was no way they could pay the tax on it so they are going to foreclose.

I don't advocate foreclosure and I am one of those people who is very concerned about their credit. However, I think a lot of people got in waaaay over their head and we have yet to see the peak of foreclosures. It may become so common that the credit market won't judge it as harshly as they once did. It is unfortunate that so many people aren't as financially responsible as they once were.

[bentlebee]

Thanks for your explanaiting.

[bentlebee]

Thanks But Can You Explain Who Will Negotiate With The Lender? Is It The Seller Or The Realtor?

[MyForeclosureAttorney]

Originally Posted by bentlebee

Can some one explain what and how a short sale works. I keep getting different explanations. Also will the seller get bad credit because of it, or is it a good option?
Also how long will it take to close on a short sale, maybe some one who has experience can help me answer these questions?
Thanks.

By: MyForeclosureAttorney.com
If the real estate has no equity, a homeowner may still be able to avoid a mortgage foreclosure judgment by listing the real estate for a preforeclosure or short sale. A short sale in real estate occurs when the outstanding loan balance against a property is greater than what the property can be sold for at fair market value. If a borrower owes more than the home is worth, or has very little equity in the home, it may be time for a short sale in order to avoid a Florida mortgage foreclosure judgment.

From the bank or lender's perspective, short sales save many of the costs associated with a Florida mortgage foreclosure lawsuit, such as attorney or lawyer fees, the eviction process, delays from the homeowner or borrower, delays from bankruptcy, damage to the property, as well as the cost associated with maintaining the property just to name a few. Banks and lenders know they could lose substantially more if the property goes all the way to auction, so it is sometimes better to sell the real estate now at its fair market value and get rid of a non-performing asset. Therefore, a bank or lender may sometimes decide to accept less than the full amount of a borrower's loan balance in certain situations. In turn, this provides the homeowner and borrower an opportunity to avoid or minimize the damaging affects of a mortgage foreclosure lawsuit.

[SIZE=3]The Internal Revenue Service will consider debt forgiveness by the lender as income, and the borrower may also have income in the form of capital gains from the sell or transfer as well. However, there are several ways to offset this gain or income such as off setting income and capital gains with losses, being insolvent at the time of the transfer and bankruptcy. CONSULT WITH AN ACCOUNTANT.[/SIZE]

Will the foreclosure process affect my credit score?
It is hard to say exactly how many points your credit score will drop due to a foreclosure. There are numerous factors that affect your credit score. It does appear though, that loss mitigation options that do not result in the completion of the foreclosure are better for your credit score, and some experts even quantify the number saved on your credit score from 100-125 points. Typically, any late mortgage payments are viewed as a negative mark. Generally, negative marks will remain on a credit report for 7 years. Foreclosures also remain on credit scores for 7 years. The impact on credit scores diminishes over time though. Loss mitigation efforts and foreclosure are definitely better than a bankruptcy, as the filing of a bankruptcy is viewed by the credit reporting industry as an attack against all trade lines across the board, whereas a mortgage foreclosure is only an attack against a single trade line, your mortgage lender.

[bentlebee]

Thank you very much.