Short Sale FAQ

What Is A Short Sale? 
A real estate short sale, or quick sale, is a negotiation between a homeowner and their mortgage lender for the lender to accept less than they are owed for an outstanding loan. 


Why would my Lender want to allow a Short Sale to help me? 
The reason is simple; a short sale often has a better return on investment to the lender than a foreclosure. The average savings a lender sees from a short sale property compared with a foreclosure property is $14,000. Not only does the lender receive this savings, they are also paid on the loan 6 months earlier than in the foreclosure process. This allows them to collect and cash-out earlier than they would in a foreclosure. Plus, lenders spend a great deal of money with attorneys to complete the foreclosure process. Lenders created the short sale process as a foreclosure alternative for those reasons. The incentives to perform a short sale on your property are in place to motivate you to participate. 


When should I start my Short Sale? 
It is best to begin a short sale when you realize you can no longer afford the mortgage, so that your property can be marketed properly and you can receive a high offer. The earlier you start, the higher our likelihood of success. Contact Us to see if you have enough time. 


How long does it take for you to complete the case once we fill out the paperwork? 
Typical cases are completed within three months. If you have a foreclosure sale date approaching we can potentially complete it sooner. 


Does Realty Legends Inc buy my property? 
No, we never take ownership of properties. There are people/companies who say they will conduct the short sale for you and buy your property. Watch out! This places a lot of potential liability on you. Our business model is to sell your property for as much as possible, which reduces the liability on you. Other people/companies will buy your property at a very low price so they can turn around and sell it for much more- what it is really worth! The banks do not like this and often refuse their short sales and/or ask you to pay back the difference. 


I have an Investor who says he can buy my house and negotiate a short sale with my bank- Is this okay? 
This is very common tactic used by investors to try to buy houses. Do not be suckered into this! You lose either way! Why do they do this? Because they have nothing to lose, they send a low offer to the bank and if the bank accepts it they get a great buy on a house. If it doesn’t go through, then you will likely go to foreclosure and it doesn’t cost them anything. Either way you lose! If it does go through you just increased your potential tax liability (read below) by having the mortgage company take a bigger loss than necessary. Additionally, if it doesn’t go through you wasted valuable time that you could have been using to get a realistic short sale offer through. 


How does a foreclosure and a short sale show up on my credit? 
A credit bureau is the only true source of information for determining how a short sale and a foreclosure is going to affect your credit. 

From our experience with homeowners, which is not to be taken as any form of legal advice, foreclosures usually show up as FORECLOSURE and can stay on your credit report for seven years. If you apply for a new loan or have your credit run, you run the risk that the foreclosure will show up. It is also a common disclosure many employers require you to make on most job applications. A short sale is commonly listed as SETTLED DEBT, and can be much less harmful to your credit. Please consult a credit bureau for how a short sale and a foreclosure will actually affect your credit. 


What liability do I have when doing a short sale? 
For advice on your liability when doing a short sale it’s best to consult an attorney. Recent changes in law, such as the Mortgage Debt Relief Act of 2007, have reduced homeowners’ tax liability. 

In a short sale of your primary residence, the Mortgage Debt Relief Act did away with much of the tax consequences. For residences other than your primary, in both a short sale and a foreclosure you could be taxed for the difference in what you owe and what the bank receives as payment. This means the IRS could consider the difference as income, and you could be taxed on that income. 

In a short sale we seek a full release of lien and request that the debt be considered settled. A short sale is a negotiation, so the bank has the right to ask you to sign an unsecured note (not backed by any of your assets) or ask you to contribute some cash at time of closing the short sale. Every short sale is different, as is every servicer and every situation. 

In a foreclosure, your house is sold at an auction, which typically causes the difference of the total amount you owe and the foreclosure sale price to be much greater than in a short sale. This means you could have a higher potential tax liability. Additionally, the bank could sue you for a Deficiency Judgment. 

A successful short sale will eliminate a deficiency judgment, minimize your tax liability, and keep the foreclosure off your record. 


What is a Deficiency Judgment? 
A Deficiency Judgment can arise when the bank sells the house at foreclosure auction. The bank can sell the house at auction for any amount less than the total amount owing of the debt plus fees. A deficiency judgment can arise if the bank sells the house for less than the mortgage debt. The lender then holds you responsible for the unpaid portion of the loan. For instance, if you owe $100,000 to the mortgage servicer and they see proceeds after the auction of $55,000, the remaining difference of $45,000 can be moved into a judgment against you. This will also appear on your credit report along with the foreclosure. The lender may be allowed to take further legal action such as garnishing wages to pursue payment based on the laws of your state. Some states have restrictions and regulations on deficiency judgments, but unfortunately the majority do not. 

Some lenders will choose the deficiency judgment while others may pursue a path to write off the loan. If they choose to write off the loan, the lender may issue a 1099 form which you will have to pay taxes on for the calendar year. 


Do I need to give you power of attorney? 
No, you should never give power of attorney to short sell your property.
 


Kieran Rice
Realty Legends, Inc.

5802 Tanagerside Road
Lithia, FL 33547
Phone: 813-856-0284
Fax: 813-699-8298
Contact Us
REALTY LEGENDS INC.

Tampa Bay Area Homes, Orlando & Central Florida Real Estate

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