Defining a Short Sale

Sometimes Las Vegas luxury property owners are forced to sell their current properties below the actual value that the mortgage company

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has set for the home. This process is called a ‘Short Sale’. It is done primarily to protect the homeowner from incurring a larger amount of debt with relation to their property.While getting into a short sale transaction can have an adverse effect on the seller’s credit rating, it can help them avoid a direct foreclosure of their homes. The lender also benefits by avoiding the extra expenses of paying for the repair and remarketing of the home after they have repossessed it through foreclosure.

A short sale is not always a viable option for dealing off with property debt. The bank or mortgage lender can only allow a short sale if they find that they will lose less with it than if they choose to foreclose the property. Otherwise, the homeowner will be forced to seek other alternatives, including refinancing, mortgage modifications, or property mediation.

Dealing with the Short Sale

Windermere Prestige Properties understands that commencing a short sale can be a difficult Short Sale 2process, and is ready to assist you in making this transition smoother. We can assist sellers in negotiating with mortgagers to ensure that they can have the short sale approved without much legal or financial trouble. Our agents can also help you screen prospective buyers and determine which of them can be the best buyers for your home. We will make sure that you receive all the possible benefits of your short sale.

Partnering with the Experts

To better facilitate the risky short sale process, Windermere Prestige Properties has partnered Short Sale 3with Distressed Property Consultants (DPC), an attorney-backed short sale processing service with years of experience in the short sale field. We work closely with DPC to ensure that the homeowner can enter into a short sale transaction without much trouble. DPC also has partnership access with law offices that can help deal with the legal aspects of the property sale. On top of all this, both the buyer and the seller can keep updated with the status of the short sale negotiations through our secure online management system.

Don’t let the possibility of a home foreclosure get you down! Let Windermere Prestige Properties carry you through a smooth short sale process.Get in touch with our short salespecialists today and find out how easy it is to deal with distressed properties through Windermere Prestige Properties.

Short Sale FAQ

1. What is a Short Sale?
A short sale is the process by which homeowners can sell their home and the sales proceeds do not fully pay off the existing loans(s) and the lender(s) accepts a discounted payoff to satisfy the loan.
This is accomplished by providing proper documentation to the lender(s) to convince them to reduce the payoff balance to allow the sale. If the sale is approved, the home can be sold for a price lower than the total debt on the property without the seller having to come up with immediate cash to cover the shortfall. The mortgage is either fully or partially satisfied and any foreclosure process stops.

2. Why would a mortgage company agree to accept a Short Sale?
There are actually several reasons why a mortgage company would approve a Short Sale, including the following:

  • Legal Concerns: Mortgage lenders have come under legal pressure to work with borrowers to equitably resolve situations where borrowers are unable to meet their mortgage obligation, particularly when the borrower makes an effort to arrive at a compromise solution.
  • Wall Street is Watching: Mortgage lenders rely heavily on their ability to package and sell bundles of loans on the secondary mortgage market. They need to sell these bundles of loans in order to put the funds back to work by loaning the money again and collect loan fees along the way. If mortgages perform poorly after they are sold it could impact the lender’s ability to sell their loans on the secondary market. A successful Short Sale gets the loan payoff resolved quickly.
  • Asset Management Expenses: If a lender acquires a property through foreclosure, the property will be managed until it is repaired and resold. It is expensive to manage real property assets. Keeping properties maintained, keeping utilities on, making repairs and the administrative costs attached to these activities are all costs the lender would prefer to avoid. A successful Short Sale eliminates most of these costs.
  • Reserve Requirements: Delinquent and non-performing loans place another burden on mortgage lenders. For all delinquent and non-performing loans lenders must set aside funds in reserve to deal with potential losses. These funds cannot be put to work generating new loan fees until the bad loans are resolved. A successful Short Sale lets the lender put more money to work.

3. Can I simply deed my property to someone else and avoid the hassle?
The lender still considers you primarily responsible for payment on the loan. If loan payments do not get paid, or if the lender ultimately forecloses, this will still show on YOUR credit. Do not deed your property to someone else without consulting with an attorney.

4. What sort of hardship would my lender consider legitimate?
Generally, so long as the hardship is real and the mortgage company believes the loan is likely to become delinquent as a result, the Short Sale request will be processed by the Loss Mitigation Department. The key to getting the Loss Mitigation Department to accept a hardship is to submit a strong hardship letter.  Below is a list of “hardships” that are common and frequently accepted by mortgage lenders.

  • Family illness or injury
  • Job loss or significant income loss
  • Divorce or split of domestic partners
  • Death of Spouse
  • Adjustment in mortgage payment or unforeseen increase in living expenses

5. I am concerned about my credit. How will a Short Sale affect my credit?
The big key here is to avoid foreclosure. Short Sales will affect your credit rating especially if you miss your mortgage payments during the process. But, by nearly any measure, a foreclosure is the most damaging event your credit status can encounter.

6. Can I be considered for a Short Sale if my loan payments are current?
Yes, however the required financial documentation must be submitted along with a detailed hardship letter explaining the inability to continue to maintain your loan payments and reason behind the Short Sale request.

7. Why Work with a Windermere Realtor?
Getting a Short Sale approved by the lender is a complicated, multi-step process. This requires a high level of patience, persistence and most importantly, experience. The Lender realizes that it is in their best interest as well as the borrower’s to have the Short Sale file packaged correctly from the very beginning by a Real Estate professional that does not have a conflict of interest.
You get professional representation at LITTLE OR NO COST TO YOU! The lender pays the Real Estate commission.

8. How does the Mortgage Forgiveness Debt Relief Act of 2007 work?
Prior to passage of this law, for any debt that was forgiven in a Short Sale or Foreclosure the homeowner would receive a 1099 and would have to report this forgiven (or cancelled) debt as income. This still holds true for those individuals who do not qualify for the exceptions of the act. From January 1, 2007 to December 31, 2012, the act eliminates the phantom tax on debt cancellation in mortgage discharge.

  • Debt must have been debt incurred to acquire a principal residence
  • Cancelled debt up to $2 million is eligible
  • Sets forth rules for determining the allowable amount of exclusion for taxpayers with non-qualifying indebtedness and taxpayers who are insolvent
  • Debt from a second (non-acquisition) mortgage or HELOC is not eligible
  • Cancelled debt from investment properties and second homes is not eligible

9. What about Tax Consequences?
If you do not qualify for the above exclusions, the IRS defines the amount you are “short” as having been “cancelled.” The lender that allows this debt cancellation is required to issue you a 1099 for this amount and you are required to claim this amount as income.
If a property is foreclosed on, this is also debt cancellation and the default amount can also be treated the same way. In most cases, the amount of default with a foreclosure will be much greater than with a short sale. This is one of many reasons why avoiding foreclosure is most likely the better option.

10. Will the lender pursue a deficiency judgment against me?
In some cases, lenders also pursue a deficiency judgment against borrowers and attempt to collect the amount that was short. This does require a separate action to be filed in court causing the mortgage company to incur further expense. The mortgage company is acutely aware of your inability to pay and often sees further collection as fruitless. In most cases, a short sale will get the lender more money than a foreclosure. The bank also has the right to pursue a deficiency judgment in a foreclosure. When considering all consequences, a short sale is almost always a better option than a foreclosure.

The information provided is for informational purposes only. Prior to entering into any Short Sale, you should discuss the matter with a qualified accountant or attorney regarding your options and the consequences of each.