UNDERSTANDING SHORT SALES AND THE SHORT SALE PROCESS LEX LEVINRAD
Any buyer will have to be a cash buyer, so a
proof of funds or a bank statement is an
absolute necessity in order for the bank to
take the buyers’ offer seriously. The buyer
needs to show that they have the ability to
pay for the property and that they can close
quickly for cash. The buyer must be willing to
show the bank a HUD (also called a “net
sheet”) of exactly how much the bank will net
on the sale of the house after all closing
costs, commissions etc. The homeowner
cannot derive any economic benefit and
must be prepared to walk away from the
house without receiving any compensation at
all from the buyer or anyone else (violating
this is mortgage fraud which is a felony).
It is preferable that the negotiator submit an offer with the condition that there will be a “non-deficiency
judgment”, meaning that the bank will not go after the homeowner for the difference between the amount owed
on the mortgage and the amount that the bank is accepting on the short sale. The previous owner will be
required to report the difference as income (although currently this requirement has been waived for primary
residences for another 12 months by the Obama administration). The bank will issue a 1099, since they will be
deducting the loss for income tax purposes and the banks loss will be the sellers gain which by definition means
income. Filing bankruptcy will not absolve the previous owner from any taxes that are due in the following year
as a result of this 1099, so the negotiator should make sure that the seller is aware of this fact.
There is no guarantee that the bank will accept, review or even communicate with the negotiator once they have
submitted a short sale offer. However, over the past few years, banks have become much more receptive to
short sale offers than in the past and some banks are expediting the process with some short sales being
completed in as little as six weeks.
It can be quite disheartening for a seller to spend a lot of time on a short sale with a negotiator and then to get a
denial from the bank. Remember that as the seller, there is no guarantee that the bank will accept the buyers
offer. Many cash buyers that purchase these properties are buying the property with the intention of keeping the
property as an investment property. These buyers will not over pay for the property. There is no guarantee they