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Short Sales



Do I qualify?



Sellers be aware don’t waste time, “The Mortgage Forgiveness Debt Relief Act “is set to expire at the end of 2012.The federal Mortgage Debt Relief Act of 2007 allows taxpayers to exclude income from the discharge of debt on their PRINCIPAL residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. This provision applies to debt forgiven in years 2007 through 2012. California has a similar law enacted April 12, 2010, SB 401, called the Conformity Act of 2010 covering January 1, 2009, and before January 1, 2013. Short Sale Anti-Deficiency Law (Full text of SB 458)


As a summary, where applicable, a mortgage lender involved in a SHORT SALE (as opposed to a judicial foreclosure) is now PROHIBITED from engaging in any of the following acts (see chart below and review possible exceptions):


  • Property that is or will soon be in some stage of the foreclosure process.

  • Property on which the mortgage obligation exceeds its current value, causing its owner to sell.

  • Property that has an owner who is experiencing a period of financial instability.

  • Property that is in poor physical condition.


There are many reasons as to why a property will fall into one of the categories from above. It is important that you speak with some one who is specialized and certified in dealing with such situations.

What Causes a Short Sale?

It is estimated that most american families can only maintain their current living expenses for 60 days or less when income is interrupted for any reason.


Payment Increase or Mortgage Adjustment

This is the single largest reason for distress in today’s market; waiting and doing nothing. Call me, Tony, and see what your options are. If we can short sale your property, you will have saved your credit and stopped other creditors from calling and harassing you.


Loss of Job

When an individual loses employment, the loss of income is most often immediate. Financial distress can quickly occur; seeming almost insurmountable.


Business Failure

For a small business owner, the devastation of a business failure is often followed by the inability to pay mortgage payments and the loss of their home.


Damage to Property

Many times insurance companies do not cover the full amount of damage to a property and homeowners are unable to make repairs. Some homeowners have to use insurance funds to survive and find new living arrangements.


Death of a Spouse

The death of a spouse is devastating to a family, and if the deceased was the only person earning wages, this will almost always cause financial distress.


Death of family members

The death of family members, regardless if they are a wage earner or not, can throw a family into emotional and financial turmoil.


Severe Illness

Severe illness, the medical bills involved, and the time that it takes away from a family’s productivity can cause bills to be missed and homes to go into distress.



Rarely does someone think of an inheritance as a means for distress. However, heirs are left to pay mortgage bills, utilities and maintenance that they did not expect. Imagine a son who makes $60,000 a year whose parents pass away and leave him with a $700,000 mortgage and payment on a $1.5 million property. He will quickly need to find a payment solution (which there may not be) or liquidate the property and satisfy the mortgage. As you can see, even properties with significant equity can be in danger of being lost to foreclosure if a solution is not implemented.



Goes without saying that divorce is one of the most common reasons for financial distress in the real estate market.



When a couple decides to separate even though they are not actually divorcing, the cost of maintaining two households can cause the loss of a primary residence.



Homeowners do not always have control over where they live; many relocations are necessities not choice. This can quickly cause unexpected distress since very few homeowners can support two households for any significant length of time.


Military Service

In some cases, service persons who have had their periods of active duty extended are suffering a tremendous amount of financial pressure.


Insurance or Tax Increase

For many homeowners just the increase in taxes on an annual basis or the increase on an insurance payment can cause a family to lose a home or go into financial distress.


Reduced Income

If a person is in a commission based business and the economy suffers, often times their income suffers. Also many companies are reducing employee compensations to make up for lost revenues that corporations have suffered.


Too much debt

For a family with credit card debt, even minor increases in their interest rates can make the difference between paying all their bills and missing payments.

Truth About Short Sales

Myth #1 – The Bank Would Rather Foreclose than Bother with a Short SaleThis is not true; the banks would rather not foreclose on your property. The foreclosure process costs the bank more money than a short sale. Overwhelmingly, banks receive more on their investment through a short sale than a foreclosure.


Myth #2 – You Must Be Behind on Your Mortgage to Negotiate a Short SaleWhile this may have previously been the case, today lenders are looking for verifiable hardship, monthly cash flow shortfall, or pending shortfall and insolvency.


Myth#3- There is Not Enough Time to Negotiate a Short Sale Before My ForeclosureThis is a myth that probably hurts homeowners the most. Many do not realize that foreclosure is a process, and there is time to make decisions that may result in better outcomes. The foreclosing party—in most cases a lender—can stall a foreclosure up to the final day of the process.


Myth #4 – Listing My Home as a Short Sale is an EmbarrassmentIt is understandable to have reservations about letting the world know that you owe more on your home than it is worth. However, according to recent estimates, more than one out of eight homeowners in the U.S. is in the same situation. You are to be congratulated for admitting you need help, taking action, and finding a professional who can work with you toward a solution. With recent estimates showing 40-60% of U.S. sales will be short sales or foreclosures, you are not alone.


Myth #5 – Short Sales are Impossible and Never Get ApprovedThis is completely false. Are short sales more difficult to execute? Yes. Do you, as a homeowner, need to learn about a new process? Yes. Are they impossible? Absolutely not.


Myth #6 – Banks are waiting on a Bailout and Not Accepting Short SalesYou may have heard this, but the reality is that banks (and the U.S. government) are trying to do anything they can, within reason, to avoid foreclosing on properties. It is preposterous to believe they would deny a short sale in hopes that some future legislation would pass and pay them for losses.


Myths #7 – Buyers are Not Interested in Short Sale PropertiesThis is a myth that potential sellers hear all the time. Thankfully, this is just not true. In fact, many agents are getting calls from buyers who say they only want to look at foreclosure and short sales.Add Answer here

Short Sale vs. Foreclosure

Short Sale vs. Foreclosure – Primary Residence


Foreclosure – A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 5 years.

Short Sale – A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage after only 2 years.


Foreclosure vs. Short Sale – Investment Property


Foreclosure – An investor who allows a property to go to foreclosure is ineligible for a Fannie Mae backed investment mortgage for a period of 7 years.

Short Sale – An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only 2 years.


Foreclosure vs. Short Sale – Future Loan with any Mortgage Company


Foreclosure – On any future application, a prospective borrower will have to answer YES to question C in section VIII of the standard 1003 form that asks “ Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?” This will affect future rates.

Short Sale – No declaration is required, there for no consequences will be added.


Foreclosure vs. Short Sale – Credit Score


Foreclosure- Score may be lowered anywhere from 250 to more than 300 points. Typically will affect a credit score for over 3 years.

Short Sale- Only late payments on mortgage will show, and after sale, mortgage normally reported as ‘ paid as agreed’, ‘ paid as negotiated’, or ‘settled’. This can lower the score as little as 50 points if all other payments are being made. A short sale effect can be as brief as 12 to 18 months.


Foreclosure vs. Short Sale – Employment


Foreclosure- Employers have the right and are actively checking the credit of all employees who are in sensitive positions. In many cases, a foreclosure is reason for immediate reassignment or termination.

Short Sale- It is not reported on credit report and is therefore not challenge to employment.


Foreclosure vs. Short Sale – Future Employment


Foreclosure- Many employers are requiring credit checks on all job applicants. A foreclosure is one of the most detrimental credit items an applicant can have and in most cases will challenge employment.

Short Sale- A short sale in not reported on credit therefore not a challenge to future employment.

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