The Short Sale: Up Close & Personal

Short Sales Defined

In our last conversation we talked about some of the ‘benefits’ of short-selling a property before the end of the year.  Over the last few years, the term “Short Sale” has been literally thrown around American households like a Frisbee, often with minimal understanding as to what is really is, how does it affect you financially and legally, and how does one go about short-selling a property.

Several years back just before I, myself fell behind in my over-priced, under-valued home, I did the only ‘natural’ thing I knew; and that was call a realtor to try to sell my house before I lost too much in it. The realtor at the time recommended a ‘short sale’, and of course having never heard of such a thing, and as many of those who know me so well will attest to me being a bit of a control freak, I looked the other way.

 

The outcome of my story wasn’t very pretty and I won’t bore you with the details, but knowing hind side is always 20/20, my issues were quite early in the real estate crash and things probably would not have been approved or moved along as they needed to before it was too late.

I’m one who tries not to assume anything, so in case you’re still not familiar with what a short sale is, this is for you.  Simply put, a real estate short sale occurs when your real estate property is placed on the market for less than what may be owed against it in the form of a mortgage, lien, or other attachments under the approval and supervision of the primary lending institution (usually your first mortgagee), with an agreement that the lending institution will settle the deficient balance of what you owe and the sale price with you, the seller, and not the buyer, often times waiving (forgiving) your deficient debt.

Short Sales & Taxes

So what’s so special about that in today’s market you ask? Under ‘normal‘ circumstances and a ‘normal’ market, even if the bank ‘forgives’ or waives your debt so you don’t need to repay the deficiency, the amount of deficiency is reported to the IRS as taxable income.  In layman's terms, if you short-sold your home which you owed $180,000 on for $145,000, the bank will report to the IRS that they essentially gave you $35,000 as ‘income’ of which you’ll be liable to report on your federal income taxes when you file. My friends, this is NOT a normal market. Home owners have been given until December 31, 2013 to have any debts from short sales ‘forgiven’ and free from federal income tax. This is why I emphasized the importance of evaluating the value of your real estate quickly in our last conversation.

Other Consequences of Short Sales

Now that we understand in fairly simple terms what a short sale is, aside from the deficient amount being tax free, you are hopefully asking what the ‘negative’ effects are. The obvious aside, a short sale does have some moderate penetration to your credit score; or at least your ability to obtain a mortgage at a competitive rate for (usually) 2 years after the short sale (check with your mortgage loan officer for details specific to your situation).  It’s also important to remember that a short sale is not a ‘get out of jail free’ card, you must be able to prove the property is a financial hardship to the banks, so the rest of what we discuss will assume, you may already be in a slightly uncomfortable place financially if you’re considering a short sale.

Do I Need an Attorney for My Short Sale?

News, television, online media and of course social media are full of ads, and you’ve likely noticed that if you’ve ever  used Google to search for information about short sales, the ads you see online (often from lawyers) can multiple quickly.  Although you should always check with local and state requirements where you live, you likely do NOT need to pay an attorney to facilitate the short sale of your home. Most licensed Realtors have the resources to successfully facilitate a standard short sale of a home.  In many cases you are more likely to render a superior level of service and commitment from your trusted Realtor over that of an attorney.  Clients are always advised to consider their individual circumstances when making these crucial decisions.

If you decide a short-sale may be appropriate for you situation, contact a trusted Realtor to start the process. A qualified Realtor will be able to get the process started for you and point you in the direction you need to look to get your sale approved by your lender.

As always, The Greenleaf-Elving Group is happy to assist you with this process.

 

The Greenleaf-Elving Group
Christopher Greenleaf, Realtor
Keller Williams Realty Southwest
6180 Brent Thurman Way, Las Vegas, NV 89148
info@captaurre.com
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