Imagine
your home is worth $200,000, but you owe $220,000 on it. If you were to sell
it in the open market at $200,000, you might net $184,000, or $36,000 less
than what you need to pay off the loan. A short pay off is where your lender
will forgive a portion or all of the short amount.
Just
about all of them will, with justification. Justification might mean a
substantial loss of income that would prevent you from paying on the
mortgage, therefore being forced in a position to sell the home. Attempting
to sell short so you can upgrade to a larger property is not justification.
In addition, lack of cash reserves will also serve as justification. Don't
expect to place your home on the market at 75% of market value and expect
your lender to jump on any offers.
Depending
on how you negotiate the transaction, it could go on your credit report as,
"settled," or, "paid," or "short payoff." It
depends on the lender and how well you can negotiate.
Yes.
If you have a Freddie Mac loan, Freddie Mac will probably want you to
contribute to the short sale, get your agent to reduce brokerage fees, and
get the buyer to take the property with the termites. Some lenders will just
ignore you.
Packaging
is very important. When you place the property on the market (go with an
agent), your agent should send the lender the following:
- Your
past 2 years tax returns
- Letter
of hardship
- Complete
loan application
- Preliminary
title report
- Listing
contract
- Copy
of MLS
- A
marketing plan for your home
- A
broker price opinion (like an appraisal).
When
you have an offer, all of the above should be enclosed with the offer
(except for the marketing plan) plus the purchase agreement, and a good
faith estimate as to what the lender will net after the close of escrow.
You
are correct. If you're loan is current, you may be able to get a qualified
buyer yourself. If your loan is delinquent, or in default, you don't have
time to play around getting your home sold. You need as much exposure as
possible.
This
is one situation where "No," means, "Maybe, you just haven't
convinced me that participating in a short sale is to my benefit." Keep
hammering your lender, and do not take your home off the market until your
lender agrees to a sales price and the prospective buyer has formal loan
approval.
Most
assets are traceable, except for personal collections (guns, coins, etc.).
If you own another property, it will show up on your credit report. Your
lender may back track to your original loan application to see if there are
any other assets. No, don't hide assets. If your lender discovers you're not
dealing honestly, they'll never co-operate.
A
lot will say they can. There's no real way to tell if they can. If your home
goes into foreclosure, you'll get flooded with a ton of mail. There's a good
bet that most of the mail is from people who have helped out previously in
these situations. One way to tell is if the person you're dealing with will
ask you for the information outlined above. They'll
know these are the requirements.
When
any lender agrees to a short pay, they are relinquishing their right to
pursue the borrower in the future
Yes.
According to IRS Section 108 a-e, there are debt/income interpretations that
may come into play. The IRS may view the deficiency on a non-purchase money
loan as income and demand you to pay taxes on that amount. If the short pay
transaction resulted in a net loss of $20,000 to the lender, your tax
liability could be around $6,350.
To
limit your tax liability. In some cases (not Citicorp, Fannie Mae, or
Freddie Mac) the senior lien holder will allow for some funds to be
allocated to the juniors. If you allow the property to go into foreclosure,
and the juniors lose 100% of their money, you can get taxed on the full
amount. You should really contact a CPA concerning this part of the Tax
Code.
Any
feedback from other states would be appreciated. There are certain regions
where FHA will not participate in short sales. One region is the state of
California. If you are in foreclosure on an FHA loan in California, you may
want to approach HUD to see if they will consider a lower interest rate, or
some type of repayment schedule until you get back on your feet.
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