Q. What is required for a short sale?
As a short sale is designed for a home owner to sell a home for less than what they currently owe on the property, there are certain requirements that must be met. The home owner must show a record of financial hardship that is both ongoing and long-term, with no sign of turnaround in the future. The home owner must also be unable to refinance the mortgage. A good way to establish a short sale is necessary is to first place the home on the market as a normal sale, which could show lenders that the market cannot support the higher price of the home.
When all options are exhausted, then a short sale is considered acceptable. Taking a loss on the home is sometimes considered better than facing foreclosure.
Q. What is the main function of a short sale?
When more is owed on the home than the property is worth, and the home owner is in financial hardship, a short sale can help avoid foreclosure. It also helps keep general property values up in neighborhoods when facing repossession. A short sale helps lenders that are already bogged down by foreclosed properties.
Q. What is the time frame of a short sale?
Getting approval from all respective lenders involved in the short sale is necessary before a sale can close. This is because multiple lenders might have approved loans on a short sale property. The “short” is not a reference to expediency, as it can take time to get approval from all involved lenders. It can often take up to three times longer than a normal home sale.
Q. Is there potential liability for a short sale?
There is a certain amount of liability, and an experienced Realtor® and attorney should be consulted. California is a non-recourse state, therefore sellers can avoid lawsuits by the primary lenders. Any additional mortgages or loans placed on top of the original principal of the property, for the purpose of debt consolidation, could have the right to sue.
A person selling through a short sale that is also living at the property as a primary residence can receive tax protection through SB 401, the Conformity Act of 2010 passed by the state of California. The difference in sale price after closing with the lender is considered taxable income. It is important to note that residences that are not primary to the seller, such as rental or income properties, do not fall under the protection of the Conformity Act.
Q. What consideration should I make for a short sale?
Since this process takes more time than a standard home sale, flexibility and patience during the process is important. It may be necessary for a buyer to make arrangement for temporary housing, since the lenders will take a longer than average amount of time to accept the purchase agreement. Also, when the process or negotiations take a long time, stalling for months, then a loan could fall through. If a secondary lender feels that it would be better to wait for foreclosure, then they might refuse the short sale transaction. If this happens over a long enough time frame, then a seller may actually choose to just walk away from the property, give all ownership to the lender, and face a negative impact on their credit history. Of course, this is not ever recommended.
For more information on Short Sales, please contact me at (760) 593-7393 or send an email: Carol@Carol-Farrar.com