It used to be when someone said they were upside down, they were referring to their car. It simply meant that the balance on the loan was greater than what the car was worth. These days it can easily apply to real estate. If you happen to find yourself in the unenviable position of owing more money on your house than the current market value, what options are available to you?
You might want to consider a short sale. A short sale could be a better alternative than either a foreclosure or a bankruptcy.
Why Would a Lender Consider a Short Sale?
At this point the lender evaluates a short sale against the other alternatives they have and from a financial standpoint it may be more advantageous for them to lose some money now vs. losing more money later. If a lender has to reposes your home, the process may take up to a year. Approving a short sale may take anywhere from 2-3 months depending upon how many files they currently have.
What Makes a Good Candidate for a Short Sale?
A lender needs to understand why you cannot make the payment. Usually a death, divorce, job loss or other hardship will help to solidify a homeowner’s case. They will require a hardship letter to explain the circumstances. More than likely if you choose the short sale route, the lender will go back and review your loan application. Any evidence of misrepresenting your finances or situation on the loan application could disqualify your chances.
Any financial repercussions from a short sale?
If you choose to pursue this option, the lender will have the final say. If you have accepted a contract the lender will have the authority to approve it. They are under no obligation to accept it. The lender can come back and attempt to renegotiate the price. If approved, do not expect to receive any compensation from the sale of your property at closing. The lender will generally pay the escrrow fees, taxes, agent’s commission and various other closing expenses. Understand they are trying to minimize their loss, so they may attempt to negotiate some of the costs. They may attempt to make you responsible for the loss. This may depend on whether or not your loan is a non-recourse or recourse loan.
A good real estate agent can prove o be an invaluable resource. The package submitted with the accepted offer will be an excellent opportunity for your agent to prepare your case and attempt to convince the lender that accepting and approving this offer is in their best interest.
You may incur a federal tax liability if your short sale is successful. Debt Relief can have some very serious tax implications. That’s why you should consult your tax advisor or seek legal counsel on your own personal situation. It’s better to know the consequences up front as opposed to after the fact.
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