Short Sale - Seller Beware

If the market value of your property is less than what you owe on your mortgage and you want to sell it, you may qualify for a legal, lender approved solution known as a short sale. This is where your lender agrees to accept a pay-off of the loan that is less than the contracted amount. This may sound attractive, but there are severe downsides.

1. Depending upon the tax basis of your home (Tax basis = the purchase price plus improvements you may have made to your home, less depreciation and any deferred gain on the sale of any previous home.), a short sale creates debt relief and an immediate taxable event for the Seller (if the bank does its legally required job). The debt-relief is not limited to the disparity between the loan amount and the short-sale price.  The 1099 can (and likely will) also include administrative expenses, Realtor's commissions, other closing costs incurred by the lender, and refurbishment costs.  1992 Federal legislation makes it illegal for a lender NOT to impose the debt-relief liability upon the borrower in compromise.
   
2. Further, the Seller’s credit is adversely affected for years after a short sale. An Offer and Compromise is a negative entry on the credit report and can stay there for at least 5 years.  As a result, someone coming out of a short sale is not going to get another mortgage loan for a long time to come and is likely to become a long-term renter.
   
3. Also, the Seller is NOT allowed a short sale if he/she has sufficient income or other resources to make the payments. Insolvency has to be documented. A good job, retirement funds, or other real estate will eliminate approval for a short sale.
   
4. Plus, if the house is in good shape, and the borrower is gainfully employed and cannot show that he/she is on the verge of destitution, a short sale will not be approved.
   
5. And more. By the time a bank gets a short sale application through its administration, credit and legal departments (5-6 months usually) the buyer has gone and has bought something else rather than opting to wait the transaction out. This leaves the seller and his agent exhausted, broke and holding the bag.

If you are facing a short sale situation, don't let your agent talk you into it. We can help. Get an idea how from these special reports:

• Foreclosure Help - Home Equity Saver™

• Relief for Tired Landlords

• Selling "Subject To"

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