Frequently Asked "Short Sale" Questions

The real estate "short sale" can be a useful and very powerful technique when a homeowner must sell their home but owe more than the home is worth. In a short sale, we help you negotiate with the bank holding the mortgage to get it to accept *less* than what the seller owes.

Homeowners considering a real estate short sales, always have many questions. Here are the answers to some of the most common. Hopefully, they'll give you a better understanding of what a short sale is and when it is appropriate.

Why do banks short sale?

Here are the most common reasons banks will agree to a short sale:

• The mortgage is in arrears or foreclosure.
• The property is in poor condition.
• The homeowner has hardships and cannot afford the payments.
• New homes in the area are being chosen over existing homes.
• The area or neighborhood has depreciated in value.
• The bank’s shareholders are concerned when there are too many defaulting loans on the books.
• Some banks are required to prove a loss each month…Let’s help them out!
• An REO is a liability, not asset. Too many liabilities will cause any business to go under if not dealt with quickly.

Can I short sale a nice property?

Absolutely! As you can see, banks short sale for many reasons other than the poor condition of the property.

Do Homeowners Still Owe Money After a Foreclosure and what happens to the homeowners credit?

Do the homeowners still owe the bank money after a real estate foreclosure? That is a good question. When you negotiate a successful short sale, keep in mind that the agreed upon price is payment in full.

However, the homeowners may still owe the difference between the mortgage balance and the discounted amount as a result a “deficiency judgment.” If granted, this judgment will affect the homeowners and their credit report just as any other judgment.

You must get the bank to accept “payment in full without pursuit of any deficiency judgment.” You need to explain to the homeowners that the discounted amount (the difference between the mortgage balance and the short sale) may be declared as income on their income tax return by means of a “1099.”

Since the homeowners have been under such extreme duress and probably haven’t made much income, a 1099 may not adversely affect them. The homeowners should speak with an accountant for advice.

What is a 1099?

The 1099 is given to the homeowners as a result of income they've received. For example, if the bank is owed $100,000 and agrees to accept $65,000 on a short sale, the homeowners actually made $35,000 (the short sale amount) and can receive a 1099 for that amount.

Deficiency judgment

The bank can seek a deficiency judgment for the shortage on the actual amount received versus the amount that was due. Using the example above, the judgment would be recorded against the homeowners for $35,000.

Likewise, the same judgment can be sought when the property sells at the courthouse for less than what is owed or after the REO department sells the property for less than the full amount.

When negotiating a short sale, you can require that the bank waive its right to a deficiency judgment. More often than not, the bank will when a homeowner can prove a hardship.

It’s important to know that the lender cannot pursue a deficiency judgment and issue a 1099. They can only do one or the other, not both. If the deficiency is waived as a condition to the short sale, the homeowners will receive a 1099.

If the judgment is not waived, the decision is up to the homeowners as to whether to pursue a short sale. If given the choice, the lender will opt for the judgment over the 1099 because of the chance to possibly collect something at a later date.

It is important to remember as stated earlier, if there is no equity and the property goes to the sheriff’s sale, and the bank receives less than what was owed, the bank can pursue the judgment or issue the 1099.

As you can see, one option for the homeowner in distress is the short sale because it can help the homeowner to avoid one of these other and possibly less desirable consequences.

We can help your through the process, at no cost to you, but only the homeowners can decide whether or not to pursue a short sale.

Your information is completely confidential and will not be used for any other purpose or given to any third party.