Below are my Orlando Short Sale FAQ’s
What is a Short Sale?
A short sale is when the lender will accept less than the full amount due on a mortgage
when a property is sold. Usually, the lender will accept the short sale to avoid the time
and expense of a foreclosure. Financially the lender is actually ahead after a short sale.
What is a Foreclosure?
In simple terms: The homeowner has not been making the mortgage payments, and it
is the action the financial institution can use to take the house back. The homeowner
borrowed money using the house as collateral with the agreement that if they could not
pay it back, then the lender could take the house.
What is involved to do a Short Sale?
In order to start negotiating the Short Sale the lender will usually require the
homeowner to submit verification that they are qualified in order to consider the short
sale. The information required and documentation necessary is provided as well as
training on the entire process.
Will the bank come after the homeowner for the difference?
I will always negotiate with lenders to “Not seek a deficiency judgment” against the
homeowner.
Is the seller going to get hit with a tax bill or a 1099 if you do a short sale?
Upon successfully closing a short sale, lenders will always report a loss to the IRS and
issue a 1099. However, the Mortgage Forgiveness Act of 2007 was signed into law on
12-20-07 and is now official, effectively getting rid of the question “will I be taxed on the
Short Sale”. Prior to this action, forgiven mortgage debt due to foreclosure, short sale,
or deed in lieu of foreclosure, was potentially taxable income to the borrower.
This was the subject of much media attention and led to many questions and concerns
from Sellers wondering whether or not they were going to get “hit with taxes” on the
Short Sale.
The new law, however, temporarily waives these taxes for debts forgiven (as high as
35%) from the beginning of 2007 to the end of 2009.
This will effectively put an end to the question from Sellers… will I be taxed on the Short
Sale discount. The definitive answer (at least until the end of 2009) is NO!
For a copy of the Mortgage Forgiveness Debt Relief Act of 2007, go to:
http://www.govtrack.us/congress/bill.xpd?bill=h110-3648 or
http://www.whitehouse.gov/news/releases/2007/12/20071220-6.html
The bottom line here is that only Acquisition funding can be forgiven by the
Mortgage Forgiveness Debt Relief Act of 2007.
Foreclosure, Deed in Lieu and Short Sales are all treated the same in regards to
taxes.
Any cancellation of debt is a taxable event except for any acquisition
funding for your primary residence that you’ve lived in for the last 2 years.
Everything else is taxable. However, please see you tax advisor if you have
a second home or investment property that you are considering a short sale
on. You accountant may advise you that you may have a loss on this
investment property that would offset any gain. Please seek advise from
your tax advisor.
Will the homeowners credit be affected?
If the homeowner has to short sale their home they’ve most likely missed payments
already. That in itself has already adversely affected their credit. The key here is to stop
the devastating affect on your credit that a Foreclosure causes. A Foreclosure is the
most damaging record on your credit report – its even worse than bankruptcy.
By working with Jerry LaRose you give yourself a fighting chance of avoiding foreclosure
and start towards the “Rebuilding” process. With our help, your credit will recover
quickly if you keep your other lines of credit in good standing. With Jerry LaRose you
have an experienced team of professionals that will help you through these tough times.
Is a Short Sale right for me and my situation?
Mortgage lenders are increasingly willing to work with borrowers faced with a financial
hardship to accept a discounted payoff on a mortgage. If you are faced with a hardship,
and are unable to meet your obligation on your mortgage, your lender would prefer to
settle the matter with you as opposed to taking the property through foreclosure.
As you consider the option of pursuing a short sale, remember your lender is looking to
limit any potential loss on your loan. By completing a short sale, your lender has arrived
at a solution that is, for them, much better than a costly foreclosure.
What sort of hardship would my lender consider legitimate?
To some extent, that will depend upon the mortgage company considering the short
sale request. Generally, as 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. A big key to getting Loss Mitigation to
accept a hardship is to submit a strong hardship letter. The hardship letter sets the tone
for the entire file.
Will the lender approve a Short Sale even if the homeowner is current on their mortgage?
Yes we have successfully negotiated and received an approval on a short sale even
when the homeowner was current on their payments.
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
payoff, 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 – homes – spread throughout the region, the state and possibly even the
nation. 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 Requirement- 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 their money back to work.
Can I still short sale my home even if I have 2 loans?
Yes, it doesn’t matter how much you owe. The lender will evaluate what the current
market value is and then decide how much they will accept.
Can I still do a short sale even if the property is in very bad condition?
Yes. Lenders are more motivated to do a short sale on a property that needs work than
on a property that doesn’t. Lenders know losses start to skyrocket when they foreclose
on a property that needs a lot of repair work. Lenders are in the business of lending
money not property management and home repairs.
If I am behind in my payments and can’t afford closing costs what can I do?
Lenders are understanding when it comes to this situation and will actually pay the
REALTORS® commission and your closing costs.
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Jerry LaRose is an Orlando Area Residential Real Estate Expert, who can assist you with the purchase and/or sale of Real Estate in Orlando, Windermere, Winter Garden Florida or any place in the country. Jerry has created a team of professionals throughout Orlando and the country to ensure that you enjoy a smooth transition to your new area. Please visit www.JerrySellsOrlando.com for your real estate needs. Please give me a call if you have questions about the Orlando and Central Florida real estate market.
P.S. If you are listing your home as a short sale in Orange County Florida and Orlando, Windermere, Winter Garden, or Ocoee Florida make sure you hire an agent who knows how to do short sales and has the experience to get the job done. We are doing successful short sale packages. Call us at 407-580-7011 to find out more about Orange County Short Sales and Orlando Area Short Sales
