Short sales have been a hot topic in the world of real estate for the past few years and short sales are here to stay for the foreseeable future. A short sale simply means that the proceeds of a real estate sale, along with any funds the homeowner can provide, are less than the amount the homeowner owes on their mortgage.
Most lenders will agree to accept the proceeds of a short sale and many will also forgive the rest of what is owed. The reasoning is that the lender can avoid a long and costly foreclosure process allowing the homeowner to pay off the loan for less than what is owed.
Although the concept is relatively simple, short sales can be extremely complicated. They present a number of legal and financial risks, including your credit score being negatively impacted, as well as delaying qualification for future home or other purchases.
If you are considering a short sale, thoroughly researching all factors involved in your specific situation and giving careful consideration to all of your options is something you should do prior to taking any steps that may negatively affect you. Contact us for more information.
Should I Short Sale My Jacksonville Real Estate?
Do you wonder if you should consider a short sale for you Jacksonville real estate?
If so, you are not alone. Many Jacksonville area home owners are facing some very tough questions. We believe those questions deserve straightforward, honest answers. The question Jacksonville homeowners like yourself are asking us every day is, “Should I short sale my home or should I stay put and try to tough it out?”
Unfortunately, far too many people wait too long to get an answer and end up facing foreclosure. We don’t want this to happen to you.
In order to make the best decision, you need to have all of the information in front of you and know your options. Knowing the current market value of your home and projecting when your investment will break-even and become an asset again is invaluable to your decision making process.
Knowing whether or not you will be able to “tough it out” is also imperative. Waiting too long to get the answers is a no-win proposition. That’s where we come in. We provide the real estate consultation and connect you with free legal consultation so that you can make good decisions. Disclaimer: We are not attorneys or financial consultants and the information provided herein is in no way intended as legal or financial advice. We strongly encourage you to seek legal and financial counsel from professionals in those fields.
What Is A Short Sale?
A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property. In addition, the property owner cannot afford or chooses not to repay the liens full amounts.
Therefore, the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt. Any unpaid balance owed to the creditors is known as a deficiency.
NOTE: Short sale agreements do not necessarily release borrowers from their obligations to repay any deficiencies of the loans, unless specifically agreed to between the parties. That is why finding the right short sale specialist is so important.
How Will A Short Sale Affect My Credit?
Great Question! This is a question we are asked often. I wish there were a pat answer but the answer depends on many of unique variables. The first thing to knowis that the moment you are 30+ days behind on your mortgage payment, your bank has the right to report this fact to all credit bureaus. When a late payment is reported to the three major credit bureaus, it directly impacts your credit score.
After going through a Short Sale, the vast majority of people have multiple 30, 60, and 90+ day late payments reported on their credit report. When the actual Short Sale is completed, 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.” Bear in mind that each lender has a different way of reporting that a Short Sale was completed, but this is the most common language used. If your house were to go to Foreclosure you would most likely see the bank report “Foreclosure” on your credit report. It is difficult to determine exactly how much damage will be done to your credit score when comparing a Short Sale to Foreclosure but, generally speaking, a short sale is preferable for most people. We are not qualified to provide legal or financial advice so we always recommend discussing this with a real estate attorney and/or a knowledgeable CPA.
We strongly advise you to work with a Credit and Credit Scoring Expert for more specifics on this topic, and ways in which to improve your credit after the Short Sale is complete. Recently, many of our clients were able to Short Sale their homes without ever missing a payment. Therefore, they do not have any late payments
reported to their credit. When there are no late payments on your mortgage, your credit score is generally not affected. It is possible to maintain a high credit score by completing a Short Sale without missing payments on your mortgage and other bills. Please be aware though, that your lender will still report that a Short Sale was done. So, while you may not see your credit score drop if you continue to make payments through the completion of the Short Sale, you’ll still likely have your account marked as “paid in full for less than the full amount” and/or “settled.”
How Does A Short Sale Affect Taxes?
There may be tax ramifications to a Short Sale. Again, every situation is unique. Something several of our clients have told us that they heard was, “If you do a short sale, 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.”
While this may be true, there is more information to consider…
If you borrow money from a lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes. Once again, it depends on your specific circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. Later, after that obligation is forgiven, the amount you received as loan proceeds is usually reportable as income. The reason being that you no longer have an obligation to repay the lender. Typically, the lender is required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
The thing that most people don’t know or fail to tell you is that when you have a Foreclosure, you also get a 1099. In the case of a Foreclosure the 1099 is called a “1099-A” and the ‘A’ stands for “Acquisition or Abandonment of Secured Property”. It is important to know that while there are significant differences, the resulting tax consequences for the ‘C’ and the ‘A’ are basically the same. Also, due to The Mortgage Debt Relief Act of 2007 you may not even be required to pay taxes on the ‘income’ as shown on the 1099-C. It all depends on your unique set of circumstances.
You shouldn’t just assume that you will or will not have to pay. Get the facts, first. We are very good at successfully closing Short Sales, but we make no claim to being tax experts and we do not provide legal advice. However, we can refer you to experts in both areas.
Why Would My Mortgage Lender Agree To A Short Sale?
Here’s the deal… foreclosures continue to be on the rise all across the nation and Jacksonville is no exception. Banks need to minimize their losses. The fact of the matter is, it is much more cost effective for a bank to agree to a short sale as opposed to going through the foreclosure process and taking on the responsibility for upkeep of the property until they can find another buyer.
Banks aren’t in the business of owning real estate. It is more financially feasible for them to take a minor loss in a short sale than to take on the burden of owning the property in terms of upkeep, insurance, repairs, and legal fees. No, the banks aren’t willing to accept a short sale because they’re just nice guys… they are willing to do so because it makes better sense.
More About Short Sales:
If you would like a free consultation to help you decide whether a short sale is best for your family, please submit the form below. We will research your property and contact you to discuss further. Rest assured that your information will remain confidential. We will not share or discuss your contact information or situation with anyone else without your explicit permission.