WHAT IS A SHORT SALE?

I have many people call me about doing a short sale or asking, “what is a short sale?”

When one falls behind on their mortgage, the bank will typically begin the foreclosure process. There are several ways a borrower can stop the foreclosure, such as: bringing the arrearage current, loan modification, bankruptcy, refinance, short refinance and lastly through a Short Sale.

A short sale in real estate is when the bank agrees to accept less than the total amount due from the borrower. Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose; moreover, not all sellers nor all properties qualify for a short sale.

Most borrowers in today’s market that are interested in a short sale owe way more than the property is worth. It is not uncommon to see a borrower 30 – 40% upside down on their mortgage.

There are very important consequences that a borrower must take into consideration prior to doing a short sale. First, they must understand it will hurt their credit. The credit damage is much less than a foreclosure, but still damaging. Second, are there tax implications. I am not a CPA and thus cannot comment on these issues that are out of scope, but for most homeowners the Mortgage Forgiveness Debt Relief Act of 2007 will be very helpful( http://www.irs.gov/individuals/article/0,,id=179414,00.html ). The lender will probably send a 1099 and if the proper paper work is not submitted, one could loose the protection provided by the Debt Relief Act. Last, before deciding on a Short Sale a borrower should seek the advise of an attorney at Law. In some cases, foreclosure is better for an individual. The big issues there are regarding deficiency and deficiency judgements. The state of Arizona is a non-deficiency state, however, there are specifics that I am not qualified to advise on that determine the lender’s deficiency rights. Please review with a qualified attorney prior to listing your home as a Short Sale. If you need one, we have an attorney offering a 10 to 15 minute FREE consultation.

With the market correcting over 50% on the downside for most of metro Phoenix, many home owners are in a position of negative equity. Which means they don’t sell, bring a big check to close or sell as a short sale. If you or anyone you know has questions about the Short Sale Process, give us a call or send an email for a informative, confidential and compassionate review.

We have extensive experience stopping foreclosures for home owners in Scottsdale, Phoenix and the surrounding cities.

Jeff Cameron