Short Sale Questions and Answers

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Question

Does a homeowner have to be behind in payment to start a short sale?

Answer

No, you don’t need to be behind, but you should have a valid hardship and be able to show that you will soon start missing payments if the short sale is not approved within a set time frame. For example, if you know that you’re going to miss payments in August once your loan adjusts and the bank is not willing to approve a loan modification to keep their rate from adjusting.

Question

What type of homes qualify for a short sale? Does it have to be a primary residence, or can an investment property qualify?

Answer

Any property is eligible for a short sale. When the value is less than what is owed and the borrower can’t make the payments or must sell for other reasons, the bank will look at whatever options they have. Usually their options are 1) accept a short sale, 2) allow it to go to foreclosure and hope it sells for enough, or 3) sell it as an Bank Owned Home after the auction if it did not sell.

Question

if the lender agrees to accept a Deed in Lieu of Foreclosure from a client, doesn’t this more negatively affect the client’s credit than a short sale would? Does the IRS look at the amount owed as income (whether it’s a rental property or not)?

Answer

A Deed in Lieu of foreclosure will affect the seller’s credit just like a foreclosure. Because you are just turning the property over to the bank. Once it is sold as a Bank Owned home the seller will be supplied a 1099 for the loss. This will routinely be a much higher loss to the bank than a short sale. (Consult a qualified tax preparer for more info on tax consequences.)

Question

If I sell my home through a Short Sale do I need to make any repairs?  Do I need to pay for any real estate cost like commissions of termite inspections or reports?

Answer

Short sales are “AS IS” purchases.  I will never ask you for money.  Everything is paid for by the bank at the close of the transaction.  What I do expect is for you to keep the home in the best possible showing condition and allow agents to show the home during normal hours.