Getting into a position to short sale is one of the most unnerving and stressful things a person or a family can go through… I don’t mean the actual sale itself… it really is the emotional loss that makes people stay up at night and worry whether or not everything will be ok. For that all I can say, is don’t worry everything always works out, just trust yourself… and educate yourself
Once you put your home up for a short sale, most people already are aware that they cannot pay for the home anymore and need to get out from under the high monthly debt; however what most people don’t know is that the banks don’t usually entertain the idea until after you are already late on your payments.
Heck why should they approve the sale if you are paying and they are collecting? I am not saying you should stop making your payments; however I am saying from my experience the banks will kind of stall the process until the homeowner is pretty much out of money or until they stop paying, which is usually both.
The Short Sale process goes like this.
1. You list your home with a realtor
2. You get an offer and accept it yourself
3. You submit this offer to the bank
4. Along with the offer, you will submit a “short sale” packet (much like a home loan packet)
5. You wait for the bank to approve the short sale this is where you wait, and wait, and wait…(usually this is the time the bank waits you out until you are out of cash, and stop paying)
6. After the sale is approved, and if the buyers are still waiting around, the process takes about 30 to 45 days to close after the approval from your bank to take less money.
Tax implications? Well during the Bush administration; they passed a law “Mortgage Debt Forgiveness Act” that expires in 2012, that you do not have to pay back any income tax that may be owed on a short sale of your primary residence. Example: You owe 500K the home sells for 400K, you are relieved of 100K of debt to the bank… however the bank will 1099 you as income on the 100K… so if you are at a 25% tax bracket you would owe the IRS 25K income tax, however this law relieves you of that tax burden.
Now, if you stop paying and put your home up for a short sale, then you can keep the money every month and the bank will most likely respond quickly to get this “Bad loan” off their books…. The only draw back on the not paying part is that your credit gets hit ASAP. And most of your credit cards will either cut the limit they give you, or cancel the cards. So be prepared to go all cash for a few years. Honestly what I have seen is that people use up all their savings during the short sale, then get their credit hit. It might be better (however I am not suggesting this) to not pay and keep as much cash, while you short sale.
The difference between a short sale and foreclosure on your credit report, and ability to get another home loan in the future is about 2 more years… however you may end-up with a foreclosure anyway if the buyer walks while you are waiting for the “approval” and have to spend all your money waiting and then end up broke, with jacked up credit and a foreclosure waiting for the bank.
If you find this info helpful, or not, or want to hear more on this topic please let me know by commenting on this blog