Some lenders will pursue you for the difference between the amount
owed on the mortgage and the amount paid through the short sale.
Your mortgage contract may include a provision for the lender to sue
you for any deficiency after a short sale is completed. You or an
attorney should review your mortgage contract to determine if there is
a deficiency clause. If so, the lender can get a judgment against you to
collect the deficiency.
If your contract contains a deficiency clause request the lender waive
its right to a deficiency judgment. The lender may readily agree
because of your financial situation. It would make no sense for the
lender to sue you for something you clearly do not have.
The lender can issue you a 1099 instead of pursuing a deficiency
judgment. A 1099 would allow the lender to write off the deficiency as
income to the homeowner. For example: The mortgage balance owed
is $300,000 and the lender agrees to a short sale of $250,000. The
deficiency balance is $50,000. The lender gives the homeowner a
1099 for the deficiency of $50,000 as if the homeowner actually made
$50,000 (the short sale amount). Keep in mind the lender cannot
pursue a deficiency judgment and issue a 1099. They can only do one
or the other, not both.
The Mortgage Forgiveness Debt Relief Act of 2007 may provide
relief from you having to claim the deficiency as income. Under this
Act, the homeowner can exclude certain cancelled debt on principal
residence from income. The amount of debt forgiveness from a lender
can be up to $2 million.
The short sale is not always an easy process. Not all lenders will
accept a short sale if foreclosure would bring them more money. It may
take several calls to your lender to get to the right person to make a
decision about a short sale. Always ask for a supervisor or manager as
you want to speak directly to a decision maker and simply not a
representative.
You may have to submit a hardship letter along with your financial
information to be approved for a short sale. If you have to submit a
hardship letter, fully explain your financial situation. Explain your loss
of income, employment, disability, illness with you or a family member,
divorce, even death of a spouse.
Be prepared to submit your financial information, including income and
asset disclosure. If you have no money in your stocks, mutual funds,
retirement, savings or money market accounts, that may be a blessing
in disguise. At least the lender can see you are not hiding money and
assets. Be honest about your finances. Less is better in this case.
Submit real estate comparables or appraisals showing your house and
other homes in the immediate area are declining in value or not worth
as much as you owe. You want to make a good case to sell your home
for less.
Once you get a solid offer and submit it to the lender be prepared for
the lender to renegotiate some of the terms of the agreement. They
want to give as little as possible on the contract, including commissions
to your real estate agent.
owed on the mortgage and the amount paid through the short sale.
Your mortgage contract may include a provision for the lender to sue
you for any deficiency after a short sale is completed. You or an
attorney should review your mortgage contract to determine if there is
a deficiency clause. If so, the lender can get a judgment against you to
collect the deficiency.
If your contract contains a deficiency clause request the lender waive
its right to a deficiency judgment. The lender may readily agree
because of your financial situation. It would make no sense for the
lender to sue you for something you clearly do not have.
The lender can issue you a 1099 instead of pursuing a deficiency
judgment. A 1099 would allow the lender to write off the deficiency as
income to the homeowner. For example: The mortgage balance owed
is $300,000 and the lender agrees to a short sale of $250,000. The
deficiency balance is $50,000. The lender gives the homeowner a
1099 for the deficiency of $50,000 as if the homeowner actually made
$50,000 (the short sale amount). Keep in mind the lender cannot
pursue a deficiency judgment and issue a 1099. They can only do one
or the other, not both.
The Mortgage Forgiveness Debt Relief Act of 2007 may provide
relief from you having to claim the deficiency as income. Under this
Act, the homeowner can exclude certain cancelled debt on principal
residence from income. The amount of debt forgiveness from a lender
can be up to $2 million.
The short sale is not always an easy process. Not all lenders will
accept a short sale if foreclosure would bring them more money. It may
take several calls to your lender to get to the right person to make a
decision about a short sale. Always ask for a supervisor or manager as
you want to speak directly to a decision maker and simply not a
representative.
You may have to submit a hardship letter along with your financial
information to be approved for a short sale. If you have to submit a
hardship letter, fully explain your financial situation. Explain your loss
of income, employment, disability, illness with you or a family member,
divorce, even death of a spouse.
Be prepared to submit your financial information, including income and
asset disclosure. If you have no money in your stocks, mutual funds,
retirement, savings or money market accounts, that may be a blessing
in disguise. At least the lender can see you are not hiding money and
assets. Be honest about your finances. Less is better in this case.
Submit real estate comparables or appraisals showing your house and
other homes in the immediate area are declining in value or not worth
as much as you owe. You want to make a good case to sell your home
for less.
Once you get a solid offer and submit it to the lender be prepared for
the lender to renegotiate some of the terms of the agreement. They
want to give as little as possible on the contract, including commissions
to your real estate agent.
A lender may allow you to sell the house for less than the outstanding
loan amount before foreclosure proceedings begin. The lender can
forgive the remaining debt between the sale price of the home and the
balance on the mortgage. The short sale saves your credit rating. Your
credit will not reflect a foreclosure.
loan amount before foreclosure proceedings begin. The lender can
forgive the remaining debt between the sale price of the home and the
balance on the mortgage. The short sale saves your credit rating. Your
credit will not reflect a foreclosure.
The forgiven amount of debt must
be reported on your federal tax
return. However, under the
Mortgage Forgiveness Debt Relief
Act of 2007 you may exclude the
forgiven amount when calculating
the federal taxes you owe. Contact
the irs.gov for more information
about the Mortgage Forgiveness
Debt Relief Act of 2007.
In some cases the IRS may still
consider the forgiven debt as
income. It is best to consult an
accountant or tax attorney to figure
out the federal tax issue.
be reported on your federal tax
return. However, under the
Mortgage Forgiveness Debt Relief
Act of 2007 you may exclude the
forgiven amount when calculating
the federal taxes you owe. Contact
the irs.gov for more information
about the Mortgage Forgiveness
Debt Relief Act of 2007.
In some cases the IRS may still
consider the forgiven debt as
income. It is best to consult an
accountant or tax attorney to figure
out the federal tax issue.
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Related Topics:
- FHA Mortgage Loans, Basic Features and Loan Limits
- The Benefits of Fixed Rate Mortgages
- VA Homes Loans
- Hard Money Mortgage Loans
- Adjustable Rate Mortgage Loans
- Interest only Mortgage Loans
- Benefits of making Bi-Weekly Mortgage Payments
- Options to Foreclosure
- Stop Foreclosure with Forbearance
- How to Request a Mortgage Loan Modification
- Downpayment Assistance Listed by State
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A Short Sale is an alternative to Foreclosure
Get your lender to agree to a short sale instead of foreclosure and keep
your credit scores from from taking a huge negative hit.
by Lisa Phillips : July 2010
your credit scores from from taking a huge negative hit.
by Lisa Phillips : July 2010