I am consistently asked “why I would list the house for short sale instead of just walking away?”
Besides the financial benefits, the short sale process is the right, honorable choice instead of foreclosure. I am talking about when the home owner is just abandoning the property and not even considering the short sale. Why not when given an opportunity to create win-win among home owner (who is on title), the bank (lien holder) and provide extending benefits to real estate agents and the neighborhood community (where the home is located). The sale is handled just like any other sale.
When divorce, death, loss of income or any life circumstances strike a family, the home owner may not able to maintain the loan current, the first thing the home owner must do is to sit down with a short sale experienced listing agent to talk about how to plan out the sale.
All banks are motivated to complete a short sale vs foreclosure. The foreclosure is an expensive process to the bank. It is a legal process against the homeowner and later the bank has a vacant home. The condition of the home cannot be predicted after the home owner moves out.
Here are some emotional benefits of short sale:
- One may feel better knowing that they are selling their home, handled just like any other sale.
- Knowing who is buying the house, choosing the buyer for the future of the home.
- Avoiding the social stigma, “my home was foreclosed”
- Integrity! Even one may not pay the full amount on the loan, home owner and listing agent are working with the bank to come to mutual agreement instead of walking away and be irresponsible.
Here are some financial benefits of short sale:
- If the loan is current, even though finding Fannie Mae loan could be very difficult but Fannie Mae guidelines allow the new buyer to purchase another home immediately.
- If the loan is current, one can qualify for FHA loan, as long as moving 600 miles away.
- If the loan is current, the lender will not have deficiency against the home owner.
- If fallen behind, 30 days late, FHA loan requirement is to wait about 3 years; Fannie Mae is 2 years for a new home purchase versus to wait 7 years after a foreclosure.
- Credit Bureaus report the short sale as “paid in full for less than agreed or settled for less”.
- FICO score drops from 50 points to 130 points as reported by some clients, mainly due to being in default rather than completing the short sale. Foreclosure impacts the credit scores about 105 points to 160 points.
- Loan application includes a question "Have you ever had a property foreclosed upon or given a deed-in-lieu thereof in the past 7 years”, not have you ever had a short sale? The application is immediately denied with foreclosure history, lying is mortgage fraud.
- The lien holder will send in 1099C (cancellation of debt) to the home owner, under Mortgage Forgiveness Debt Relief Act of 2007, the provision excludes the debt as a taxable event on all primary residence purchases.
IRS website states: “This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The amount of debt forgiven must be reported on Form 982 and this form must be attached to your tax return. More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17.”
- A job application may be denied if the prospective employer runs a credit check if there was a foreclosure in the last 7 years, not over a short sale.
- Home owner may be qualifed for HAFA Program, as outlined at their website “Unlike conventional short sales, a HAFA short sale completely releases you from your mortgage debt after selling the property. This means you will no longer be responsible for the amount that falls "short" of the amount you still owe. The deficiency is guaranteed to be waived by the servicer.
During the short sale, home owner may reside in the property until the lien holder approves the sale. Just like any other sale, the home owner will have the closing date to plan out their move and walk around to neighborhood, holding their heads up to say goodbye to their neighbors instead out being forced out of the house by the bank the middle of the night with no goodbyes…
In closing, feel free to call Sebnem Oden, Realtor®, Broker for additional information about your bank’s short sale procedure and never forget to contact a licensed professional for legal and tax advice before making a decision between short sale and foreclosure. In order to have affordable help for expert legal advise for this and any other legal help, go to www.RightsInUS.com
Oh by the way, if you happen to know anyone who would like the level of service I provide. My purpose for you to be outrageously happy with the help I provide that you will gladly introduce me to friends, family and co-workers who are struggling with their home value being less than the mortgage amount.
Make it a happy day!