short sale in real estate is caused when a home-owner owes more than the value of the property. In order to better understand a short sale, an example would help. For example, lets say a home-owner owes $450,000 on the value of the property and the home is worth $300,000. If the owner were to sale the home, he would technically owe $150,000 on the property. Since the current owner falls short of money when he sells the property, the bank/lender can negotiate on the price of the home. The lender decides to take a value less than the value owed on the property and this avoids foreclosure.

In order to avoid a short sale, a new program for reducing the principal balance on the current home loan is available. With this program, the home-owner will get positive equity back in the property, avoid the short sale and still keep the home. In the above example, the owner will get a new loan for 90% of the current market value of the home or $270,000.

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For BOTH Homeowners AND Investors There is a very common misconception out there about the tax consequences after foreclosure. It goes something like this: tax liabilities are inevitable for a property owner (either a Homeowner or an Investor) and that if a property goes through foreclosure, there may be less potential tax consequences to deal with as opposed to the property being sold through a Short Sale. This misconception is causing many property owners to make decisions (for instance – not proceeding with a Short Sale that actually would be in their best interest) that could literally cost them thousands of dollars or throw them into bankruptcy. While there is no question that any type of debt forgiveness can trigger a 1099, the 1099 after a Short Sale and the 1099 after a foreclosure can be handled in such ways as to effectively minimize the actual tax paid on the debt cancellation amount and in many cases handled correctly there will be no tax payments necessary.

I will first start off by saying that I am not a tax attorney or an accountant. So for a complete understanding of the following concepts, I would recommend seeking professional advice. What I am writing is based upon my reading, understanding and discussion of the legislation and of the IRS publications that are commonly available. I will include links to those documents for those of you that are interested in understanding this topic better.

In the early part of the foreclosure crisis, Congress enacted legislation called ‘The Mortgage Debt Relief Act of 2007′. The main part of this legislation was directed at the primary residence homeowner. Following this legislation, it became widely believed that only the primary residence homeowner received tax relief from a 1099 received after foreclosure or after Short Sale. What this misconception overlooked is that the tax liability following the receipt of a 1099 could still be effectively reduced by other provisions in the tax code that deal with issues of insolvency. Many Investors felt dismay and became quite forlorn when they felt that their underwater single family house purchases were ‘going down’ and dragging them with them. Not only that, when all was said and done they feared that they would be hit with big 1099′s and resulting big Income Tax payments in the following years that would throw them into bankruptcy. Why wouldn’t they? After all many of these small portfolio investors were usually good people who never missed a payment on anything in their life and had no prior reason to consider or understand anything about the meaning of insolvency.

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When banks reject your short sale offer, do you just easily walk away? What should you be doing?

Bank Rejection is Possible

Even if you think everything is finally set, banks may still find reasons to reject your offers. They do this because they want to keep their loss at a minimum. People engaging in short sale would want to sell their houses less than their outstanding loan in exchange for the forgiveness of debt. If the bank accepts, this would normally result to a loss in the part of the bank. That is why they are being meticulous on whom to grant this opportunity.

If you are interested to know why they reject it, here are some of the reasons:

1. Your offer price is lower than the calculated BPO.
2. Your hardship letter is not convincing enough or it could be your reason for undergoing short sale is not acceptable.
3. Your short sale package is incomplete or some of the requirements got lost.
4. It could be your loan was already sold to a third-party investor and they may have rejected your offer.
5. On the other hand, it could be because the property sold has a mortgage insurance that lenders would find it advantageous in their part to foreclose the property and collect money for no loss.

You can make a Counteroffer

In certain situations, you can have more reasons to just not give up trying. Depending on the reason for rejections you can always make a counteroffer to sweeten your proposal. This way lenders would be able to see the benefits of short sale on their part. However, take note that this would mean more additional days or weeks for waiting. So, if you do this be sure you do your best because sweetening the offer does not stop foreclosure from happening.

When you pursue this, the first step to making a counteroffer is knowing the exact reasons why your bank rejected the offer. This will allow you to evaluate if you have to fight or fly from the situation. At the same time, this also saves you time on deciding which area of your offer that needs to be changed.

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Nationwide, homeowners have found themselves in a home that they owe more on the mortgage than the current market value of the property, and are not sure how long it’s going to take to actually see equity in their property again, at least not in the near future. Because of this, many economists are now concerned about something called “Strategic Defaults,” which is basically homeowners that feel that it doesn’t make financial sense to keep their home anymore and are now considering a short sale or just letting it go into foreclosure. Lenders are now seeing a lot of cases where the homeowners are choosing to be late on their mortgage, even though they can afford the mortgage. Strategic defaults are fueled by the declining value of homes, as homeowners feel like they are throwing good money after bad, so lenders need to come up with programs to combat this, which should include some principle reductions or incentives for on time payments or we will see a very slow recovery in the housing market. Florida is one of the states that are experiencing a high level of strategic defaults as its one of the states that has seen the largest decline in home values.

The Obama Administration understands that as the economy gets worst more and more homeowners will decide to walk away and that will hinder the recovery of the real estate market, so they have invested over $75 billion to encourage lenders to work more diligently with homeowners nationwide to encourage them to stay in their homes by means of a loan modifications and short sales instead of walking away. Homeowners have to also realize that if they choose to walk away from their home, they are going to see some negative impacts to their credit report, as they will have late payments and now a foreclosure in the public record section of their credit report. Which can result in 100 – 200 point drop in your credit score, as this will disqualify you for a new mortgage for a few years, as well as you can see your credit card interest rates go up and insurance premiums will also increase just to name a few, being late on your mortgage and having a foreclosure on your credit causes a ripple effect in your finances.

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In real estate, a short sale is a sale in which the proceeds of the sale fall short of the balance owed on a property’s loan. This usually happens when the homeowner or the borrower can no longer pay the mortgage. In this sale, the borrower will have to present the sale proposal to his lender rather than risk foreclosure. The lender then will decide that selling the property at a moderate loss is better off than pressuring the current debtor. There should be consent by both parties before a short sale is done.

A homeowner facing foreclosure lets say, for example has an existing mortgage of $400,000. He or she could write an offer to the lender for a sale of $320,000, which is accepted as full loan payment. Why do banks accept this sale proposal? Simply because banks dislike excessive bad loans and excess inventory on their books and will look for a chance to sell the property without a big loss. Lenders too will favor a short sale than an auction because of the many fees involved in an auction, and it would be much convenient taking the discount and be done with the unnecessary headache of an unpaid loan. It does not really matter what kind of house or the condition it is in, all mortgages can be discounted. The best homes to perform short selling are those that need plenty of repairs and work because a lender could give you a bigger discount. Typically, there are additional considerations that could convince a lender to agree to this type of sale, including if the home is located in a bad area where sales are low. Short sales could affect a person’s credit report, although its impact is normally less than a foreclosure. This could remain on his or her credit report for seven years, depending upon the other credit information. It is possible to be able to get another mortgage one to three years after a short sale.

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You must know all the facts about a piece of property before you consider if a short sale is worth it and it is good to immediately place a call to your real estate agent to ask for their assistance in this process. It is important to remember that the rule of averages states that only about two in every ten short sales inevitably close. This is because regardless if a piece of property is listed well under the market value of a neighborhood, the seller’s bank is still not under any obligation to agree to an offer or sell the property. If you see a listing that is very low, understand that there will be fierce competition on the property and this is sometimes used as a selling tactic to drive interest and increase attention given to a piece of property. In fact, it is a statistic that homes that are priced very low, typically sell closer to market value than a home that is moderately priced.

Next, make sure you ask your real estate agent to fully investigate the property and determine just how many lenders are involved and how many mortgages are associated with home. In addition, if your agent is experienced with short sales they will be aware and understand which lenders use this as a sales tactic and which are easy to work with when it comes to a short sale purchase. They will be able to inform you whether or not this is something to go after. It is important for you to also look at the statistics associated with the listing agent. If they are experienced, you should see that they have closed some with regularity. If they have not this could be a bad sign for you as a buyer. The reason is because your agent can have no discussion with the bank about this short sale and that it is up to the listing agent to actually submit offers on a short sale to the lender. If they are unable to do this, you run the risk of wasting your time.

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The housing market continues to decline, and more people are finding themselves under water. In Phoenix, Arizona, people are selling their homes because they can no longer afford the mortgage. While foreclosure is an option, short sales are fast becoming the more frequently chosen route. Why? This article will explain the benefits so that anyone who finds themselves in this position can make an intelligent decision.

Due to the declining housing market, many homes are now worth less money than they were when the owner bought the home. If a homeowner gets behind on their monthly payments, they are unable to refinance since the home is worth less. Many feel at this point that foreclosure is the only option, but Phoenix realtors have noticed an increase in short sales. This is advantageous for the seller in several ways.

One advantage is your credit rating. While a short sale does have a negative impact on your rating, it is less severe than foreclosure. When you go into foreclosure, your credit rating drops by 250-280 points, and you usually cannot purchase another home for at least 36 months, usually 4 years or longer. When you choose to go the short sale route, your credit score is reduced, but it is usually around 80-150 points and you may qualify for another mortgage in only 18-24 months.

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A short sell is a property sale where, to avoid a foreclosure, both the original purchaser and the lender agree to sell the property for less than the value of the mortgage on it. It’s the art of compromise with houses and multi-figure dollar amounts. A short sell is usually the last option before a full on foreclosure.

A short sell, or short refi, has a number of requirements before it can be consummated. The first is that the home owner needs to make the case for hardship, in the form of a letter to the loan processor. It needs to be a persuasive case that all other options have been exhausted and that a restructuring of the loan settlement is the best case for both the home owner and the lender. This will require a fair amount of documentation by the home owner; they need to disclose their entire list of assets and liabilities, and that this short sale is the best alternative to declaring bankruptcy or foreclosure on the property.

Once the lender has agreed to the short sell, in most cases, the house goes on the market to find another buyer. This means getting the home listed with a realtor or other sales agent, and then showing it to prospective buyers. Because most people doing short sales are in a hurry, there are a lot of steps in this process (home inspections, legal consultations and the like) that will eat time and have to be handled simultaneously. Among these concerns are tax judgments. In many cases, the IRS will treat the difference between the original mortgage and the short sell refinance as income for the person who takes it; while they can be quite forbearing on this, it may complicate your plans.

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One of the most common questions I get asked as a credit consultant is; How can a short sale be performed without having to damage your credit? The answer is actually quite simple. Always try to prevent the damage to your report prior to the negative item(s) being placed on your report. One false rumor is that in order to qualify for a short sale you need to be late on your mortgage. I will be happy to explain why this rumor is false in another article, the main thing to understand here is that a short sale is a form of loss mitigation.

You are actually helping to minimize the damage your bank is going to suffer by dealing with this situation head on versus living in the home for 6-12 months with no payment and waiting for a foreclosure. The decision you need to have communicated to your bank is would they rather work with you, or against you.

When my firm is retained to help you keep your good credit intact while preventing damage on your credit report, we always like to start early. It takes much more time to clean up a damaged report, then to keep a clean report from being damaged, Although we have been successful in negotiating with Banks into removing short sale delinquencies after the fact, we like to send a certified letter to the bank that attempts to help our clients form an allegiance with the bank. By showing the benefits and cost savings the bank will receive simply by deciding to work with us instead of against us, we can now decide the best strategy to move forward with.

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A Short Sale is when a lender accepts a discount on a mortgage to avoid a possible foreclosure, auction, or bankruptcy.

Yes, you read that correctly a lender may be willing to accept a lesser amount than owed. Most of the people who are facing foreclosure tend to be upside down on their property meaning that they owe more than the property is worth or cannot afford to sell their property and pay all costs associated with selling . This is where a short sale takes place. A homeowner is put in a situation where they cannot afford to sell their property and walk away without owing the lender money.

Why would a lender accept this?

*In Illinois the foreclosure process is a lengthy it could sometimes take up to 9 months, which can also be delayed if you have the proper representation

*The foreclosure process costs the lender money. While the actual foreclosure process itself may not be very costly(3-5K), the amount of time that the lender does not receive payments, takes the property over, then tries to resell it later all amount to very high costs.

*Lenders do not like excess inventory or foreclosures on their books, especially in this market. Don’t you think they have enough properties to sell?

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