Short Sale FAQs
What is a short sale?
A short sale is a real estate sales transaction where a property is sold for less than the mortgage(s) or liens on the property. The mortgage lender(s) or lienholder(s) have to approve the sale price since they will be receiving less than is owed to them. Because lenders have to approve the sale, short sales can take longer to close than regular sales (generally 2-6 months).
What is our short sale fee?
There is no fee for us to represent the seller in a short sale. Our realtor’s commission of 6% (split 3.5% to us and 2.5% to the buyer’s agent) is paid out of the sale proceeds.
How does a short sale affect my credit?
Mortgage companies usually report a short sale to credit bureaus as “paid in full for less than the full balance.” This generally has minimal effect on your overall credit score, but obviously we cannot guarantee how the credit bureaus calculate your scores after a short sale. A short sale definitely has much less negative impact than a foreclosure or even a deed in lieu of foreclosure. The best way to handle a short sale is to continue to pay your mortgage up until settlement so that there are no missed payments reported to the credit bureaus. In that scenario and if your credit is otherwise good, you can generally purchase another home immediately after a short sale.
What happens to the deficiency in a short sale?
We try to negotiate with the lender(s) or lienholder(s) to waive the deficiency between what is owed on the mortgage and what they receive from the sale. However, we cannot guarantee that the lender will agree to such a waiver. Sometimes, rather than agreeing to waive the deficiency, a lender might require a promissory note for the deficiency balance or a portion thereof. If the lender does agree to waive the deficiency, they will send you a 1099 Form in the beginning of the following calendar year which will list that deficiency amount as debt forgiveness income. There are currently exceptions to tax liability for debt forgiveness income such as insolvency (when your debts exceed your assets) and bankruptcy. You will need to speak with your tax advisor regarding whether you qualify for one of these exceptions. Note that if your mortgage and liens have been discharged in a bankruptcy, the lender cannot pursue you for the deficiency or require a promissory note and the deficiency waiver is not taxable as debt forgiveness income.
What are the benefits of a short sale?
If your mortgage(s) is more than the value of your property, a short sale can free you from the negative asset that your house has become and allow you to purchase another property at market value so that you can start building equity. With an underwater property, you are basically paying rent to the mortgage company because you are not creating equity in the asset every time you pay your mortgage. If you have received a bankruptcy discharge, surrendered the property expecting the lender to foreclose, but they have not, you are still responsible for the property because the deed is still in your name. That means taxes, insurance, homeowner’s association (HOA) dues, condo dues, and county requirements for yard maintenance are all still your responsibility even though the lender cannot pursue you for collection of the mortgage. A short sale can end your continuing responsibility for the property. Because a short sale historically has minimal negative impact on your credit, you can start rebuilding your credit sooner by doing a short sale rather than waiting on a bank foreclosure, which will have a major negative impact on your credit. In addition, a short sale is viewed as a more responsible way to handle an upside down mortgage because the sales price is generally at market value rather than a diminished foreclosure sales price. Selling at market value in a short sale will positively impact the value of properties in your neighborhood and does not create a court docketed foreclosure on your credit and the public record. In addition, many of the mortgage lenders have been giving short sale incentives and paying moving expenses if you do a short sale rather than a foreclosure.