I have previously written an article about things to consider before deciding to short sell your home. Now I’ll discuss some of the things that go on in the process of short selling your home. Here are some tips to make your life a little easier throughout the short sale process, and some things to be expecting.
Short selling a home allows a homeowner to get out from under their property for less than is owed on the principal of the loan at the time. The value of the home must be less than the balance owed. Short selling is a valid option for people facing foreclosure in today’s market.
The leg work on a short sell can be frustrating. There is a lot that you as the homeowner will have to take care of. A lawyer is highly recommended throughout the entire process. There are aspects of short selling a home that could come back to haunt you later in life if all of the T’s are not crossed and the I’s dotted.
The first thing you must do to short sell a home is to contact the Lender and find out if they will allow the short sale. This is very time consuming usually, as most times you will need to climb the ladder of management until you get to someone with the authority to approve a short sale. This will most likely take you multiple calls.
Once the Lending institution has approved a short sale, a letter of intent must be written by you to the Lender. The letter must outline why the you can no longer keep up the payments on the home. Bank statements and pay stubs will be required. They will dig into your finances, so do not try to hide income in any way. It is also a good idea to give the Lender authorization to speak with other parties involved in the short sell. Your Lender will not speak with your lawyer or any other real estate agents without this authorization. Submitting it after someone has had to ask will only draw the short selling process out longer, so send this with the letter of intent to help speed things along.
Once the letter has been accepted and things are set with both the Lender and a buyer, you must realize that the closing process will be a little different because of the short sale. The Lender will most likely put stipulations on the contract to keep them from losing anymore money than they have to. For this reason don’t go into a short sale believing that you can help the buyer with any closing costs, or that you will be able to help by paying for inspections. This all subtracts from the bottom line, and since the Lender is already accepting less money with a short sell then the loan was originally worth, they will most likely not be willing to give anymore.
About this time in the short selling process you should make sure to request that the Lending company not report this as adverse credit stemming from your short sale to the credit agencies. The Lender is not required to say yes, but it has happened before. You can lose nothing by asking.
I mentioned this in my last article on short sells, but I feel that I can’t emphasize it enough. The IRS may consider your short sale as relief of debt. A relief of debt translates as income to the IRS. This means that you may be required to pay taxes on the difference between what the Lender took to pay off the loan, and the original loan amount. This is one of the main reasons that you would need a lawyer. The Lender will not tell you if your short sell is going to be reported that way, a lawyer knows the right questions to ask. I can not stress this point enough, get a lawyer!
Short selling a home can be a great relief to a home owner facing foreclosure or bankruptcy. In addition the Lender benefits by at least receiving most of their money from the short sell, rather than none of the money with a bankruptcy, or having to pay all the fees that come along with foreclosing. I hope that no one has to face this decision, but if you do, I hope this will at least help you to feel enlightened with what you may be walking into. It is a long hard process, put the pros usually outweigh the cons when it comes to short sells.