To short sale or to just walk away, that is the question…..
Why Do a Short Sale?
I am not sure…but what is a short sale?
Everyone is doing a short sale, can I too?
Short sale is a certain kind of sale. Not every home and seller qualifies for a short sale. Albeit just because everybody around you is doing a short sale, it doesn't mean that you can do a short sale as well. But that does not mean that we don’t at least try to explore that as a possible option for you. When consulting with my clients who are considering a short sale, we have to review their financials, examine the current resale value of their home vs the amount they owe on their current mortgage (determine if there is no equity), you have to prove financial hardship as well in paying your mortgage. Do you have a plan B when/if the bank does not approve your short sale?
Typically, there is no deficiency judgement, and most likely no income taxes due on the forgiven debt. Please check with your accountant and get legal advice before embarking on a short sale to find out if you will owe taxes and whether you will be released from the debt.
If you abandon your home, which is what walking away from your home means, you could still be liable, not only for the debt but also for any damage that happens to your home in your absence. By throwing up your hands and walking away, your mortgage bank, the government, and the insurance company, may be coming to look for you. By obtaining tax and legal advice and completing a short sale without a deficiency, you are receiving a new lease on life and a clean slate.
So the question of WHY DO A SHORT SALE should be now turned into a statement of WHY NOT DO A SHORT SALE.
Why do I have to do a short sale?
You short sale when your home has no equity. No equity? What does it mean that I have no equity? It means you owe more than your home is worth.
Or sometimes the seller has to do a short sale, because there are 2+ loans on the property.
***There is no reason to walk away from your home. If you do a short sale, you may be able to get a release of liability ( you will not be financially responsible for the difference the bank has forgiven e.g. owe $200,000 sold home as short sale for $130k, bank forgave the $70,000 difference you still owed)
Who Can Do a Short Sale?
Sellers will typically qualify for a short sale, when you have no equity and can prove financial hardship.
Contrary to what people think, most banks aggressively pursue short sales and want to approve them. They are not trying to foreclose on everyone. But the key is that you need to hire a realtor and short sale attorney team that has experience in working short sales, and you need to contact at the 1st sign of financial problem. Don’t wait until it is too late. I have had clients that have gone into foreclosure because they didn’t know that this is an option for them, by the time they contacted me or were referred to me it was way too advanced in the foreclosure process.
In the end, a short sale helps you in the future. It is less of an impact on your credit score (save 300 point hit on your credit report) than just letting a property go into foreclosure.
Short sale is the RESPONSIBLE thing to do.
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