Short sales 101
Answers to FAQs
Are there any capital gains tax issues with a short sale?
Generally: No. Capital gains are only an issue when someone makes money on a deal. In a short sale borrowers lose money and under certain circumstances might actually continue to owe money.
What taxes do need to be paid following a short sale?
That depends on the kind of tax. If the bank sends a 1099 form for the deficient amount, the seller is required to pay extra income tax. Property taxes have to be paid. Who pays them depends on the banks rules and the agreement reached during the short sale agreement.
If a house is “under water” (when the loan is greater than the value of the home) is it still possible to complete a short sale?
Possibly. The best approach is to talk with a short sale expert and to work with your lender to learn what options are available. The most common options are short sale, deed-in-lieu of foreclosure, and foreclosure. Lenders prefer avoiding foreclosure. Either way, your first stop should be to get information from you lender or consult a short sale expert on what options they provide.
How do I know if a short sale is my best option?
If you are faced with financial hardship that makes it likely you will not be able to remain up to date with your mortgage, it’s likely the lender would rather find a solution short of the challenges that come with foreclosure.
Lenders are trying to minimize their losses on a loan. Completing a short sale means the lender has agreed to an option that likely benefits all parties.
What constitutes financial hardship?
For the most part, the definition of financial hardship is at the discretion of the mortgage company. Generally speaking, if the hardship is legitimate and the mortgage company believes that without a short sale the loan would become delinquent, the request will be processed by the loss mitigation department. Common causes for financial hardships include:
* Family illness or injury
* Illness or injury in the extended family – particularly if it forces relocation
* Job relocation when the property is equity deficient
* Job loss or significant income loss
* Divorce or split of domestic partners
* Adjustment in mortgage payment or unforeseen increase in living expenses
How does a good credit score help the homeowner during the short sale?
Credit scores will remain relatively unscathed if the borrower stays current with payments during the time leading up to the short sale. If the lender considers the deficient amount a judgment that could negatively impact a score.
How do I get started?
The best option is to contact a foreclosure prevention professional, a Realtor trained on the intricacies of the short sale. To find out more about options open to you contact Dennis J. Rath at 440.331.0900.
How does a realtor profit from a short sale?
When formally requesting a short sale commitment from the bank, realtor commissions are usually included if a realtor was involved in the deal. The bank may counteroffer to lower the commissions. The realtor can explain the short sale process and help the owner negotiate with their lender to get it sold and the realtor gets their commission.