The Short Sale

One of the many questions I get is as follows: What if the lender says no to any kind of loan modification?Well, if you have exhausted all other options, Then you should really consider a short sale. Though most of might know what a short sale is, this blog is for the people that need to have these things broken down simply. A short sale is where the lender agrees to allow the sale of the property to be less than what is owed on it. You still have to be able to prove hardship for them to allow such a sale, but it is better than a foreclosure. Alright, admittedly, I don't know as much about a short sale as I do about loan modifications. what I do know is that a short sale should be your last resort. If by chance you are declined or you are reaching a breaking point, this is a better option than just walking away. Yes, you will take a hit on your credit, and no it will not be as bad as the foreclosure. What your main concern is, or should be, is the deficiency. If you already have an agent to list your home, you will need to make sure that you stay on top of them about what is going to happen with that deficiency. If you owe $250,000 on the house but it sells for $150,000, you may still have to pay that $100,000 that makes up the difference. There is paperwork and negotiating that needs to be done so that you may walk out of this with as little owed (if any) as possible.

Short sales are on the rise. In fact, according to www.realtytrac.com, short sales in the first quarter are the highest that tey have been since 2009. What this tells you is that while you may not get approved for a loan modification, that doesn't mean that you have to walk away. With the new guidelines that have been set recently, lenders and homeowners alike are having to take an action, so there is less of a chance for the foreclosure to take the house out from under you. These guidelines are in place for that reason. Again I don't know as much about this process but here is what I do know:

1. The lender MUST review and respond to any requests for short sale within 30 days form the time that they receive it, and send out the borrower response package.
2. If it is still under review after that 30 days, that have to keep you updated every week.
3. They only have 60 total days to make a decision and send you out the response package.

With that, when you receive that borrower response package, you need to hurry because you only have about 30 days yourself to fill it out and return it. So make sure that your agent or whoever you have helping is on top of that. We homeowners have to do our part as well. If we don't, we look at the lender as being unfair and we want to push the blame on them.

In any short sale situation you will receive a 1099 from your lender. If you work on a 1099, you know that you usually set aside 30% of your gross for taxes. What you don't want is to have to pay anywhere up to 30% of that $100,000 that we were speaking of before. You need to make sure that your agent or whoever is helping you is filing for a 1099-C, which is a cancellation of debt. This way, you don't owe the IRS another $30,000.

If you have an FHA loan you may even get relocation assistance. Ask your Realtor about this.

All of these things are the small intricacies that are going to help you get a positive response from your situation. Take control of it the best you can. Let me know if you have any questions or concerns.

Have fun kids!