Luxury Short Sale Realtor

QUESTION: My home is worth less now than when I bought it and I owe more to the mortgage company than I think it would sell for. I can’t make the payments anymore because I lost my job and had to take one that pays less money. Can I ask for a short sale?  How does a short sale work?

ANSWER: I’m sorry about your situation. Before I get into talking about a short sale, I want to make sure you are aware that, if you want to keep your home, you can contact your lender to discuss a loan modification or reach out to a housing counselor approved by the federal department of Housing and Urban Development. You can find a counselor in your location by searching the HUD website at http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm/.

It sounds as if you have already made the decision to leave your home. In that case, you can ask your lender if a short sale is an option for you. Before you do that, though, you might want to contact a real estate agent in your area to get an estimate of what your home is worth today. Some markets have seen improvements in home values and you may find that your home’s value has appreciated more than you think. If not, it’s best to contact your lender to ask about the short-sale procedure. You will also need to work with a REALTOR® who has experience with short sales and can help you negotiate with your lender and with prospective buyers.

A short sale takes place when your lender agrees to accept less than the full amount for your loan payoff. You will need to provide full documentation of your income and assets as well as a hardship letter that explains why you can no longer make your mortgage payments. Once your lender agrees to a short sale you will need to list your home for sale with a REALTOR®.

A short sale can sometimes take a long time because the negotiations take place between you and your listing agent, the buyer and the buyer’s agent, and your lender.

There are several consequences of a short sale that you should know about that will impact your finances in the future.

• Taxes: The IRS treats a forgiven debt as income, which means that if you paid your lender $100,000 through a short sale but you owed $175,000, the unpaid $75,000 is considered income. The Mortgage Forgiveness Debt Relief Act of 2007, designed to help homeowners who lost their homes to short sales and foreclosures, expired at the end of 2013. It’s possible the Act could be reinstated at some point, but until that happens, you’re responsible for paying income tax on the amount of debt that’s been forgiven by your short sale.
• Credit score: While a short sale may be a little less devastating to your credit score than a foreclosure or bankruptcy, it could cause your score to drop significantly. If you haven’t been paying your mortgage for several months, that will also hurt your credit profile.
• Recourse or non-recourse states. Depending on where you live, it’s possible that your lender could legally pursue you for the rest of the money owed on your mortgage after the short sale. It’s important to work with an attorney and REALTOR® with experience in short sales who can help you understand the legal paperwork you will sign and let you know if you could become liable in the future for the rest of the mortgage debt.

Before you decide for certain that a short sale is your best option, you should consult a housing counselor to discuss your choices.