How to Short Sell Your Home
How To Short Sell Your Home
In September of 2016, my sorority sister called and asked me to meet with her and her husband about listing a home they own. It was currently a rental. The tenant was three months behind on rent which made them behind on the mortgage. To make things worse they purchased in an area where home values were still upside down (they owe more to the bank than their home is worth).
It was becoming impossible to pay two mortgages. They wanted a solution, but they did not want a foreclosure on their credit report. Because of this situation, they were great candidates for short selling their home.
What Is a Short Sale?
A short sale is when you, the owner, can no longer afford to pay the mortgage. Instead of walking away from your home, you work with the lienholders or banks to sell it on their behalf for a lower discounted price.
You should consider a short sale if you are behind on your mortgage, you need to relocate, you can't sell because you are upside down on your mortgage.
Here is what you need to know to have a successful short sale:
The realtor you choose to sell your home can’t be a spouse, a sibling, a parent, or child. A conflict of interest cannot exist. Make sure your realtor has experience in short sales, unless your Realtor involves a third party that specializes in short sales.
You must be at least 31 days late on your mortgage. The purpose of a short sale is to give the home back to the bank because you can no longer afford to pay the mortgage. If you are finding a way to make your mortgage payments on time each month, you are showing the bank a different story.
After the short sale transaction, it still will be reported to all credit bureau agencies that your mortgage would settle for less than the full amount. This may have a negative impact on your credit. Make sure your lender cannot come back and sue you for the difference after the sale.
Your lender, the holder of the loan, may also report the balance to the IRS as a cancellation of debt. Your tax advisor can guide you through this process.
You cannot purchase a new home for 2 years. The purchase date of your new home must be 2 years to the date of the short sale transaction. The short sale is also reported to the credit alert verification report also known as CAIVRS. There's a possibility you may not may not obtain government financing for a period of time.
The bank will determine how much time you will have to sell the home. If it is not sold within that time frame, they will exercise the right to foreclose.
Owner-occupants, you may be eligible for a cash incentive from the bank as a way of saying “Thanks for not letting it go into foreclosure” ….. you decided to live in the property until it was sold. If you walked away, it would have cost thousands of dollars to make repairs and make it livable again.
Sometimes short sales are anything but short. I've seen some close within a month, and some take as long as six months. One thing I noticed at a short sale closing, the seller is happier than the buyer because they are closing a chapter with many lessons learned.
If you are considering a short sale, talk to the company that holds the mortgage to discuss your options, find a realtor that specializes in short sells, have patience, and most importantly-do your research to get knowledge so you can have a successful short-sell.