FAQ’s About Short Sale

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Do I qualify for a short sale?: Call our office today for a free consultation. We find that many people discredit themselves as being able to qualify when in many cases they do.
How long will the short sale take?: Short sales can take anywhere from 45 days to 6 months depending on the lender and the investor holding the note.
How much will a short sale cost?: The short sale is absolutely free! You should never pay a fee for a short sale, if one is asked, run the other way. The lender pays for commissions, closing costs, escrow fees, etc.
What happens to the deficiency balance after the short sale is completed?: This depends on the terms of the short sale approval. The majority of the time our negotiators are able to get them waived. In some cases, however, the lender may choose to release the lien so the short sale can be done, but still reserve the right to a deficient.
What is a deficiency judgment?: A deficiency judgment is the balance owed to the lender after the short sale or foreclosure is completed. In a short sale, our negotiators work to get them forgiven.
What is a Short Sale?: A short sale, or short pay, is when a lender agrees to take less money for the home than is currently owed by the borrower in order to settle the debt.
Will a Short Sale Affect my Credit?: Yes, however the majority of damaged caused to one’s credit is due to the missed mortgage payments, not necessarily the short sale. There are certain circumstances where the lender may allow you to complete a short sale while staying current on your payments, which can help sustain your credit at a healthy level. However, if you are already delinquent, the short sale will allow you to settle your debt and avoid further decline of your credit score. There are also several agencies that can help repair you credit after a short sale.
Will I have to pay taxes on the debt forgiveness of the lender?: Anytime there is “debt forgiveness” the IRS will consider it as money earned. For example if your lender wrote off $100,000 on your short sale, they will send you a 1099-C for that amount. The “C” stands for Cancellation of debt and you would include this on your income taxes.
Luckily, under the Mortgage Tax Debt Relief Act that George W. Bush signed into law in January 2008 and extended to 2012, homeowners who do a short sale on their primary residence, and have a purchase money loan, will not have to pay taxes on the debt forgiven.
For homeowners that have pulled cash out from their home, but have put the money back into their property to “Substantially improve” the home will not have to pay taxes.
However, for those that pulled cash out of their primary residence and spent the money on something other than upgrading the property or, if they are selling vacation home or rental property, this can result in a taxable event from the IRS. The only exemption from this tax is if they qualify for the insolvency exclusion. If a homeowner qualifies for the insolvency exclusion this means that they have more debt than assets at the time of sale and would again, not be responsible to pay the taxes of the debt forgiven. We advise all of our clients to speak to a CPA if they still have additional questions.