We’ve found 3 key areas lenders consider when evaluating a short sale:
• If the borrowers are unable to pay – this must be proven through the financials they put together for bank review.
• The Market Conditions must show the home’s value’s have declined.
• The Borrower must provide reason for move or sale.

If the borrower is unable to prove that the hardship is involuntary, meaning out of the borrowers control; it is unlikely the lender will approve a short sale even if your home value has declined.

If the borrower has the ability to pay their mortgage but is forced to move due to a job transfer or another hardship (must be documented), then the Lien Holder may agree to allow a short sale even if you currently can afford your mortgage.

Most likely. We’ve had a few clients who qualified for a short sale while they were current on their mortgage. But unfortunately it is not the policy of most lenders. Our experience over the years with lenders was always that they required the borrower to be in pre-foreclosure and delinquent on the mortgage before they would approve a short sale. However, because of unparalleled high delinquencies lenders are experiencing at this time, many lenders have changed their policy on short sales over the past year as they realized they were forcing borrowers who would have otherwise continued to pay while their short sale was being approved, to stop paying in order to get consideration and approval of the Short Sale.

Therefore, it is our recommendation that the borrower contacts their lender to communicate their situation and ask if they must go in default or not to qualify for a Short Sale.

We’ve had many successful short sales on investment properties
but of utmost importance is this ….that the borrower’s financials
prove that there is an involuntary inability to pay. If the borrower
still has the financial ability to keep paying on their mortgage, the
lender will not be inclined to approve a Short Sale. And just
because the value of the asset has declined should not be the
motive to do a Short Sale.

I’m confused, shouldn’t I just allow my property to foreclose rather
than do a Short Sale because in a foreclosure I wouldn’t have to pay tax
on the debt forgiveness?

The last thing you want is to owe more taxes to the IRS. So this is
a key area to understand. According to the IRS, debt forgiveness
is a taxable event whether the forgiveness occurred as part of a
foreclosure, short sale, or loan modification. Please go to the IRS
website
For more information and consult a tax attorney or CPA to discuss
your particular situation.

Unlike Foreclosure, the term “Short Sale” does not actually appear in a credit report. It is not a public record. But how it does impact your credit has to do with not only the missed payments but also the way the lender reports the mortgage loan when it is closed. So, it’s important to understand before you agree to your lender’s terms how the mortgage loan will be closed and reported to the credit reporting agencies. Especially be sure to understand exactly how any remaining balance will be reported also to the credit buruea’s. Also be aware the lender may sell the remaining debt to a collection agency.

When you pay less than originally agreed on any loan, the impact on your credit report is almost always negative. It would be rare for a lender to report the mortgage as “Paid” and forgive the remaining amount. In that instance, assuming all your payments had been made on time, there would be no negative impact on your credit scores.

But for the vast majority of instances, a short sale is reported as “settled” which means that you reached an agreement to repay only a portion of the total amount. The remainder is written off as a loss by the creditor.

Settled accounts, like charged off accounts, are very negative, particularly because a mortgage is involved.

Foreclosure and “deed in lieu” of foreclosure are other options to close out a mortgage loan, both of which would negatively impact credit scores.

The goal should be go get the best terms possible from the Lender, accept the consequences in terms of negative impact on your credit, with a goal to move on so you can start rebuilding your credit through positive account management.

There is a huge difference! Most people or companies doing short sales are
capable of gathering the correct information and submitting proposals and
getting short sales approved. We are not just about getting short sales
approved. From the start, our main purpose is to find out the needs of our
client, if they want to stay in their home, we help them get Loan
Modification free of charge! If we see that if the client is so buried in debt
and will never be able to get themselves out of that situation, we encourage
them to seek an attorney’s advice. Also, short sales do effect a persons’
credit and we really have a good grasp of how their credit is effected and
truly CARE about what happens to our clients after the short sale is
approved. That’s why we pay attention to the Lenders TERMS and how this
will effect our client. We truly look out for our clients best interest now and
in the future. We want our clients to be happy they worked with us and we
certainly care about their experience with us!

Washington State Law dictates the circumstances in which a lender has the right to pursue a borrower for a deficiency after a foreclosure. These laws do not directly apply to a short sale so you are advised to consult an attorney to discuss what remedies a lender may have under each of your alternatives: Foreclosure/Trustee Sale, Short Sale, Deed- in- Lieu, Loan Modification.

The short sale approval letter sometimes states how the lender will be treating the shortage and will contain language like, “forgiving the balance” or “acceptance as payment in full”. It is recommended that you consult with an attorney before electing to pursue a short sale so you understand the risk and benefits of each of your options. If you decide to complete a short sale, you should ALWAYS have an attorney review the Short Sale Approval Letter before signing it.

Here is a good website to review regarding the topic of Deficiency

No. You have to qualify. Please read below information taken directly from the IRS website:

What is the Mortgage Forgiveness Debt Relief Act of 2007?
The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 (see News Release IR-2008-17). Generally, the Act allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence.

What does exclusion of income mean?
Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt on your principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts?
No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing separately.

Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home?
Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681.

How long is this special relief in effect?
It applies to qualified principal residence indebtedness forgiven in calendar years 2007 through 2012.

Is there a limit on the amount of forgiven qualified principal residence indebtedness that can be excluded from income?
The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if married filing separately for the tax year), at the time the loan was forgiven. If the balance was greater, see the instructions to Form 982 and the detailed example in Publication 4681.

If the forgiven debt is excluded from income, do I have to report it on my tax return?
Yes. The amount of debt forgiven must be reported on Form 982 and this form must be attached to your tax return.

Can I exclude debt forgiven on my second home, credit card or car loans?
Not under this provision. Only cancelled debt used to buy, build or improve your principal residence or refinance debt incurred for those purposes qualifies for this exclusion. See Publication 4681 for further details.

If part of the forgiven debt doesn’t qualify for exclusion from income under this provision, is it possible that it may qualify for exclusion under a different provision?
Yes. The forgiven debt may qualify under the insolvency exclusion. Normally, you are not required to include forgiven debts in income to the extent that you are insolvent. You are insolvent when your total liabilities exceed your total assets. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982. Publication 4681 discusses each of these exceptions and includes examples.

The Home Rescue Team is not attorneys so we recommend you speak with both an attorney and tax professional before considering a Short Sale.