Short Sale Information Suggested Reading

A short sale is used to describe the sale of a home in which the homeowner owes the bank more than the home is worth.  The bank agrees to allow the home to be sold for less than what is owed.  

Would I qualify for a Short Sale?

There are 2 main qualifications for a Short Sale candidate:

1.  A homeowner who is behind on their mortgage payment and is unable to keep up with all of their monthly obligations. Some of the reasons for falling behind on their mortgage payment may include sudden change in monthly household income, loss of job, divorce, health or illness and more.

2.  A homeowner with no equity in their home. They are not able to sell their home and pay off all of the outstanding loans that are secured against their property.

How long does a short sale take?

The stages of a Short Sale process are:

1.  Working with you as the homeowner to get all of the required documentation that your bank will require us to send them. This stage shouldn’t take longer than a couple of days.

2. John and his Team prepare the listing paperwork and schedule an appointment with you to see your home and prepare your home to be listed for sale.

3.  The John Bell Team will aggressively marketing your home for sale and producing a willing, ready, and able buyer. This stage can take as little as a few days or as long as a few months. On average, John receives offers on short sale listings within 3-6 weeks.

4.  John will present the Offer to Purchase to your bank. The actual negotiation/approval process can take as little as 1 month or as much as 8 months. On average most Short Sales take between 100-150 days from the date the offer is presented to the lender to the date of the Short Sale approval. In most cases, 90-100 phone calls and faxes back and forth between the lender and our team are required. The process is usually not described as fast, but with John and his Team working on your behalf, you can be assured that everything is being handled diligently and with much care.

5.  The period of time between Short Sale approval from the bank and the buyer closing on the home may be anywhere between 30 days and 6 months.  Time to close is dependent on the banking institution with whom we are negotiating with.

Who pays the Realtor commissions?

In a Short Sale transaction you, as the seller do not have to pay the Realtor commissions or any of the closing costs; the bank covers all of these costs. The banks will also pay for any unpaid Homeowner’s Association fees or unpaid taxes on the home.
 
What are the tax ramifications of a short sale?

You may have heard, "Don't do a short sale because you will get a 1099 and have to pay taxes on the difference between what you owed on your home and what you sold it for or the amount the bank wrote off." This is only partly true.

If you do a Short Sale you will receive a 1099 from your bank. This 1099 will be called a “1099-C.”  However, you will also get a 1099 if your home is foreclosed upon.  A Foreclosure the 1099 is called a “1099-A.”

What's the difference between a 1099-C and a 1099-A?  The 'C' stands for "Cancellation of Debt" and the 'A' stands for "Acquisition or Abandonment of Secured Property".  The differences are much more than you get the 'C' with a Short Sale and the 'A' with a Foreclosure. It is important to know that while there are many differences, the tax consequences for the 'C' and the 'A' are the same. You may not even be required to pay taxes on the 'income' as shown on the 1099-C, but don't just assume that you won't have to pay. Before making your final decision, first consult your CPA or Tax Preparer. Please, consult a professional CPA or Tax Preparer before beginning the Short Sale process.

Hence, if you are debating between foreclosure and a short sale, it is in your best interest to do a short sale instead of allowing your property to be sold for less at Foreclosure.

Will a short sale hurt my credit?

If you are 30+ days behind on your mortgage payment, your bank has the right to report to all of the credit bureau’s. When a late payment is reported to the three major credit bureaus, it does have a direct affect on your credit. After going through a Short Sale or a Foreclosure, most people have multiple 30, 60, and 90+ day late payments reporting on their credit report.

After the completion of a short sale, most banks will report to your credit report that your account was “paid in full for less than the full amount.” Your credit report may also be marked as “settled.” Every lender has a different way of reporting that a Short Sale was done, but this is the most common language. If your home were to go to Foreclosure you would most often see the bank report “Foreclosure” on your credit report.

Why would a bank agree to a short sale?

It is much more cost effective for a bank to do a Short Sale rather than Foreclose on a home. Banks are not interested in owning real estate. Banks make their money from receiving monthly mortgage payments. While banks will take a loss doing a Short Sale, they often minimize their loss by as much as 10-20% over a Foreclosure.

Can the bank sue me or place a judgment against me for the difference of what I owe and what the home sells for?

Not if you sell your primary residence.  For more specifics on this topic, please consult a real estate attorney.

I have a Trustee Sale Date, is it too late to do a short sale?

When the official “foreclosure notice” is filed (whether it is filed after you miss 1 mortgage payment or 3 mortgage payments), there is a 91 day period of time between the filing and the actual “foreclosure sale” or “trustee sale.”  It is not too late!

Helpful Links:

State Bar of Arizona - Free Legal Advice

Arizona Foreclosure Information Workbook

Arizona Foreclosure Information