There seems to be a lot of misinformation out there about short sales. Is it bad, does it hurt my credit, do I have to pay someone to work with the bank, should I stop making my mortgage payments?
These are all questions I have heard over the last year or so. The bottom of the barrel for your credit is Foreclosure. This is simply when the bank says enough is enough and they force ably take your home from you due to lack of payments. The next level up is Short Sale. This is a process that has always been an option. Over the years as people transferred jobs there were many cases when someone owed more than they could sell their home. When this happened people had a couple of choices. Either come up with the difference and pay the short or ask the bank for a short sale. In the past we didn't see such discrepancies as we are now seeing in parts of the Country. In the past someone may have owed $200,000 on the home and the home was worth $180,000. In today's market someone could owe $700,000 on a home and it is only worth $300,000. This by the way is called being up side down.
Let's look at the first example. There is a $20,000 difference. In that case if the person selling the home didn't want to or have the money to pay the bank the $20,000 upon selling the home the person could ask the bank to accept a short sale. This is when the bank will accept an offer less than what is owed on the home. Prior to December 2007 the banks would then issue the seller a 1099 at the end of the year stating that the $20,000 was income according to the IRS tax laws. In December 2007 a law was passed that allowed tax payers to forgo the 1099 as it relates to short sales. That is a good thing as in many cases people are upside down $100,000 or $400,000. Could you imagine the bank issuing you a 1099 for income of $100,000? You would then owe the IRS at least $30,000.
You can now see why so many people over the last 12 months have been attempting to Short Sale their properties. In my neighborhood we have 29 homes on the market and 20 of them are short sales.
Does a Short Sale hurt your credit? This is a tough one to answer. If you keep making your payments on time and because it is not a foreclosure it should not ding your credit. Again, it should not ding your credit. If you have not received a call or a letter in the mail about short sales, you will. There are legitimate law firms and ex-mortgage brokers who will attempt to charge you money to negotiate with the bank on your behalf as it relates to a short sale. I encourage you not to spend that money. These people will also tell you to stop making your payments. Do not do this is you care about your credit. Remember, short sales are not new just the way the Tax code is handled is new. Many people "feel" awkward and embarrassed reviewing money with their lenders or banks. If you are one of these people and you are going to attempt a short sale, make sure you pick a REALTOR who has experience in this field. You will not have to pay them to do their job. This REALTOR should be in contact 1-2 times a week until the process ends. Get a weekly update from the REALTOR on his or her conversations with the bank. Keep notes for yourself and do a periodic spot check. Call the customer service representatives yourself and ask them to give you dates that your REALTOR has called in. All of this information is easily accessible.
The process of a short sale: Every bank is different but one common theme is the time it takes to complete the process. 90-180 days is the time frame. Patience is needed by everyone involved and remember there is no guarantee that the bank will accept your short sale offer. Make sure that whatever buyer offer you accept that it is a strong one. Make sure the offer matches the comparable homes in the area. If it is far below the "comps" as we call them, the bank will counter back at the comp price. For example, if you owe $700,000 on the home and the home is worth $300,000, the way you figure the worth out is with comps. In this example, don't expect the bank to accept an offer of $100,000. They will counter back at $300,000. Do your homework and find a good REALTOR.
Any questions or if anything is not clear, feel free to contact me.
Thinking of San Diego, let me work for you.
Chris Scioscia
REALTOR
CENTURY 21 Award
http://www.ChrisScioscia.com
Toll Free 888-510-3939
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