Ok so let’s picture this situation. You live in a beautiful home with your family which you currently have a mortgage for. But during the real estate boom, you decided to buy another home at relatively outrageous price. As we all know now, that home’s price is anything but outrageously low, but you still owe quite a bit on it.

Now you are paying mortgages on your current home, AND another property that’s worth almost 50% of what it was worth. Not to mention the economic times are getting tough and prices of about everything are going up except our properties.

Does it make any sense to shell out an additional one thousand? Two thousand? Maybe even three thousand dollars a month on a home worth a lot less than what you bought it for? No, not really at all.

But there’s a solution! It’s called a short sale. Yes I know this word pops up like a hundred times throughout the day and it may even have a bad connotation to it, but let me explain what it is exactly. A short sale is simply a deal done with the bank to sell the property for less than what’s owed. Often times, the original debt is than wiped out and the homeowner walks away owing no more money, and the bank recovers some of their losses.

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The “short” in short sale simply means that the amount paid at the sale of a property on behalf of the borrower for an outstanding mortgage is less than the amount owed. But there is nothing “short” about the process. In fact it should be called “long sale” because real estate professionals who specialize in short sale transactions are well aware that – patience, diligent follow up and a long wait – is the name of the game. Due to the increasing numbers of distressed homeowners, there has been an upsurge in the number of potential short sales available to real estate agents. Many of these homeowners need someone to negotiate their short sale once they have decided that it is the best option for them to use to avoid foreclosure. The sheer amount of documents to be prepared as well as the time spent on the phone going back and forth with lenders makes investing in a Virtual Assistant (VA) a strategic decision. Now, “How can hiring a VA ensure that each short sale negotiation is carried out more efficiently and effectively?” To answer this question, let’s go through the entire process and then point out crucial areas where a virtual assistant can complement the agent’s efforts.

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The best short cut to completing a short sale is actually having the lender sell the note to the property buyer. Yes, often the lender will consider selling the note at a discount when it won’t do a short sale. The difference to the lender is the cost and time saved in selling the note versus the drawn-out time required to complete a short sale.

The options to the lender are to:

1.) complete the foreclosure through the court system, which it will have to do if there are additional liens against the property that must be “extinguished”,
2.) complete a short sale to an investor who may or may not close on the transaction, despite having given a deposit and showing proof of funds, or
3.) selling the mortgage note to a buyer in a few days at a discount they would have accepted on the short sale, and have no further headaches.

Generally this decision is an easy one in accepting the best offer that nets the lender the most money in the least time. However, some lenders have policies about what discounts they will take and often they have an internal policy of not selling their single mortgages at a discount to investors. This varies greatly from lender to lender and I am always surprised when I make an offer only to be told that the loss mitigation representative says “I’m not sure”.

If we want to make an offer to the lender to buy a note, we preface the conversation with “We often buy the mortgage note (trust deed) at the same discount we would pay for a short sale and we continue the foreclosure”. We go on to explain that the lender can be out of the mortgage in seven days or less instead of 30 – 60 days or more. The benefit to us as investors is to get the transaction done and know we control the property. You do not have to have the deed to the property because you can continue the foreclosure and get the property at auction.

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A Short Sale is recommended by real estate experts as the best alternative for foreclosure avoidance. What is meant by Short Sale? Well – imagine you are one among the unfortunate millions of US home owners, who are facing foreclosure process due to default in repayment of mortgage dues. Worse still, you find your property value in the market is below the amount of your mortgage balance due. You are considered as a homeowner “underwater” like several others.In such a dire situation, even if you sell your property to a buyer on your own accord, the proceeds will not be sufficient to clear the mortgage debt. It is here the Short Sale option comes to your rescue. You as a borrower-house owner explain your financial inability, to fulfil your mortgage commitments to the lender and seek their permission for selling off the property at a price, which may not be equivalent to the mortgage dues.The lender has to approve your request and give you permission to sell your home, after evaluating all the particulars and documents submitted by you. Why the lender should accept a price, which is normally less than what is due on your mortgage? A good question indeed.The Short Sale option is anxiously promoted by the federal government through a latest legislation called Home Affordable Foreclosure Alternative (HAFA for short), with a view to help millions of home owners out there like you. Its provisions are stipulated clearly, with a view to eliminate the ambiguities and delays involved in the procedures, so far existing.Mortgage lenders are encouraged to consider Short Sale requests with least possible delay. There are financial incentives also, to forgive the difference in sale proceeds and the actual mortgage dues.So in the present situation, it is most likely that mortgage lenders will accept Short Sale request, including yours speedily.

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There are thousands of foreclosed homes and short sales, there has never been a better time to get a great deal. But before you do here are a few tips because there can be expensive problems. Know what getting into before you buy a foreclosed property or short sale. Owners of foreclosed properties do not want to leave there homes. They can and do take there frustration out on the property. One property that was taken over by the bank found that 1200 gallons of cooking oil was dumped into the septic. The previous owner is currently under investigation for the incident but has not been charged. The previous owner had a bio-diesel company. Owners have removed toilets, sinks, damaged flooring and actually taken out widows. Properties that are empty can run into serious problems also, water damage, pipes freezing, mold, thieves, and rodents.

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There are many things to consider when facing the possibility of foreclosure and deciding to short sale your property. Time and space to not allow me to get into every aspect of these transactions and all the possible nuances that might need to be dealt with, but I will do my best to cover, what I feel, are the most costly to over look. First let me say that I DO think short sales are great and do a lot of good for people who know they are their best option. I do these for people everyday and I’ve seen people’s lives get A LOT better afterward so the purpose of this article is NOT to paint short sale in a bad light, but rather to inform you of the whole picture some people in my industry WON’T tell you. Lets get to the point… You NEED to know whether a short sale is your best option: First off, you need to know whether doing a short sale is right for YOUR situation. You NEED to asses the situation YOU’RE in and make that decision. So how do you do that? Start by realizing that for the most part short sales help people the most if they CAN’T make their mortgage payments anymore due to a long term hardship. Long term doesn’t mean 20 years or anything, but at least 9 months. For instance getting injured and losing employment for an extended period of time, illness, divorce, etc are reasons most lenders will be ready to approve as a hardship.

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The year 2009 was ground shattering for the housing market. The foreclosures in the country continued to increase exponentially and many lenders went out of business. The government tried unsuccessfully to stabilize the crisis by giving money to the lenders (instead to help homeowners). Many taxpayers will be receiving 1099-C tax forms if they went through foreclosure or short sale. The fact that the lender is sending those 1099 forms means that they are not going to pursue a deficiency judgment. This is good news. Usually, the amount of debt cancelled is considered an income. However, there are exceptions.
-If your home has been foreclosed on, box 2 of 1099-C will show the amount of debt forgiven. Usually, at the sheriff’s sale, your lender buys the house back and it becomes an REO (real estate owned). The intention of the Bank is to sell the house as soon as possible, but sometimes it takes many months to get rid of it. The good news is that your amount of debt cancelled is based on the fair market value of the house (box 7 of 1099-C). This is important: the difference between the FMV and the loan amount is what matters to you and shows in box 2. However, if it is a primary residence, according to The Mortgage Debt Relief Act of 2007, the amount of debt cancelled is excluded from the income.
-If you had a short sale, which means that your home has been sold at a discount (with your lender’s approval), you will still receive 1099-C. The only difference in this case is that in order to calculate the debt cancelled the actual purchase price is used. Again, if it is about your primary residence, it is excluded from income (form 982 has to be prepared).
-If the debt cancelled was a business debt (for example rental property), then the loss of the property results in a “sale”. Therefore gain or loss has to be calculated. Make sure you find an experienced tax professional who knows how to handle cancellation of debt.
-Income from the cancellation of debt is excludable for an insolvent buyer to the extend that the liabilities exceed the FMV of their assets. In plain English this means that if you have more debt than assets, you have the right to exclude a certain amount from your income. For example, if you have debt cancelled of $100,000. Your liabilities are $180,000 and your assets are $150,000. Your insolvency is for $30,000. Therefore, instead of reporting $100,000 as an income, you will report $70,000 only.

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Currently, the nation is undergoing a chain of events in the real estate markets around the country. Residential homes worth a large amount of money are now valued less than on third of the value in today’s marketplace. Unfortunately, this has put many property owners in a situation where the property owner owes much more debt than what the property is worth now. Understanding short sale tax implications when short selling a property is key to any distressed seller that is looking at doing a short sale transaction. What makes this situation even more dangerous is that many of these properties in harder hit markets were purchased with variable rate mortgage loans. Inevitably, all of these loans had a reset date the would ultimately increase the monthly payment to proportions that the property owner can not support. When we look at the sum of the two scenarios (lesser property values and elevated debt payments) with the added real economic realities such as job loss, divorce or health issues, this makes for increased stress and worry as well as forcing the property owner to sell the home if they cannot get refinanced successfully. When a distressed seller is forced to sell a home or less than what is owed, this is called a short sale transaction. Many sellers do this in order to avoid a foreclosure on their credit profile. Industry professionals all agree that a short sale is far better than letting the property go into foreclosure.
There are a higher percentage of people that are unable to afford the current mortgage payments regardless if the mortgage could have been refinanced anyway. Most people that got caught up in the mortgage meltdown were betting on the market increase in order to sell the property to the next real owner occupant thereby creating a profit spread. All of this was suppose to happen before the the mortgage interest rates reset to increase the payment to the lenders. Even some owner occupants were betting on their jobs giving them salary raises in order to resolve the increased payments coming in the future. Some short sale laws were enacted by the US Government such as the Mortgage Forgiveness Debt Relief Act of 2007 to help people faced with this dilemma. This law passed in 2007, help property owners that sold property in a short sale can completely bypass the federal taxation between the mortgage balance and what the property sold for using a short sale transaction strategy. This law itself takes much worry and financial distress from people who need to short sale their properties with no worry about the taxation woes of selling them.

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As I have been writing throughout my articles, the short sale is a great tool and can be used for two purposes. It can help you stay in your home as long as possible or it can help you actually sell the house at a discounted price and avoid foreclosure. To answer the question if the short sale is successful means to clarify your intentions first. If you want to stay in the house, any approved short sale offer is a bad outcome. It is clear to see that depending on your intentions the actions you have to consider are different.
-The first thing to do when opening a short sale process is to find a buyer. No buyer – no short sale. Then you have to sign a purchase contract with him. Usually the price is very low, which does not matter for the first submission. Any reasonable price will do. Do not forget to ask the buyer to provide an approval letter from his lender.
-Prepare the short sale package and submit it (usually by fax). You can check my article about preparing the package. Make sure that you write your loan number on each page (very important). Check in a week to see if all of the documents have been posted on your account. If not, fax everything again.
-In a few months you will receive a call from a real estate broker to perform the BPO (broker price opinion). The result of the BPO will give the lender an idea about the fair market value of the property. The BPO can make or break the deal (whatever it means).
-If you use the short sale as a tool to prolong the foreclosure process, you want the offer to be rejected. Hence the higher the BPO – the less chances of acceptance. On the day of the appointment, make the house look very nice. Point out all of the good features and behave as a proud homeowner.
-If you really want to sell the house, then you want the offer to be accepted. On the day of the appointment do not even make your bed. The saying “the worse, the better” works perfectly in this case. Talk to the real estate broker and explain that it is a short sale and this is your only way out of foreclosure.

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A short sale is one way to save a property from being foreclosed. However, the process is not easy at all. Some sellers and buyers who went through this type of real estate transaction may even say that it is hard to close a short sale deal. This opinion may be brought about the financial liabilities attached to the property. Basically, a short sale may be a good option if a homeowner defaults on his loan balance, which consequently puts the property on the verge of foreclosure. He should appeal to his lender to discount his balance and permit short selling of the property. Afterwards, the proceeds would then all be diverted to the lending agency. But the finality of this sale process is intensively dependent on the lender. It takes a lot of time before the lending institution would approve the short sale. The bank loss mitigation stage and repetitive follow ups of documentation are only two factors affecting lengthy waiting time for the approval.

In order to be successful with this type of deal, the seller must learn how to put up a proposal the lender would willingly accept. The latter party should also be agreeable to cooperate. Another thing the homeowner ought to have is a listing agent with strong negotiation skills. Such professional could hasten the decision making process of the lending agency. If these are ensured in hand, then the next stage of accepting buyer offers can proceed. Note that there are many properties short selling on the market, thus attractive and right pricing is an utmost need. Once the house is enlisted, buyers can approach the bargain table. However, all the buyers should be ready to patiently wait for whose offer was accepted. The lender once again deliberates the offers. Some offers may be deemed acceptable by the seller, but the lender thinks otherwise. Thus, closing the sale is slowed down once more.

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