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What is a Short Sale?
A short sale is a negotiated agreement between a homeowner and a lender that avoids loss of the home to foreclosure. Short sales are normally used to avoid or resolve unpaid mortgages, unaffordable homes or foreclosure proceedings. It is a mortgage relief option that should only be pursued with the guidance of an experienced lawyer who understands the full process of a short sale and its consequences.
To be effective, a short sale must provide a homeowner with permanent household financial relief without negative tax consequences.
A short sale is the sale or "transfer" of a piece of property to a buyer at a price that is less than the mortgage amount owed by the Seller. A short sale requires the voluntary consent of creditors with mortgages or liens against the property. In a short sale, the sale proceeds are less than the seller's customary costs of sale and the amount needed to satisfy all liens or mortgages owed on the property.
Short Sales and Debt Relief
Short sales are exceedingly difficult to accomplish because they require the approval or permission of all applicable lenders or servicing companies. Unfortunately, these companies never provide advance approval of a short sale number, and don’t devote the attention or manpower necessary to create an efficient process for short sale approval. The approval procedure is erratic and fraught with delays. As a result, you will need to obtain a qualified buyer for your home while still waiting for the bank to provide short sale approval. This means that all short sales are very stressful and very difficult. Too few are successful.
Many times banks will require that the seller still be responsible for the amount not fully paid off at the time of the sale, so that the short sale will still leave the seller responsible for the deficiency. This leaves the selling homeowner stuck with a rental in a new location, while still having to repay the debt from their old home. This should always be treated as an unacceptable result.
Second mortgages and other liens can make it almost impossible to complete a short sale, since it means that the seller needs the approval and permission of numerous separate creditors who all have their own interests to protect.
Short Sales, Mortgage Deficiencies, and Tax Debt
In all events, never attempt a short sale unless the result of the sale will leave you with a fully resolved financial fresh start. Being left in debt after a short sale is not an acceptable "solution" to a family's financial problems. To provide a true solution, a short sale must:
- Leave the seller completely forgiven of all the short fall money in writing well in advance of completing the closing of the short sale.
- Leave the seller without other overwhelming debts still outstanding (e.g., credit cards, medical bills, taxes, etc.)
- Not result in a taxable gain to the seller as a result of debt cancellation, which is taxed to the forgiven homeowner as 1099-C income.
Never consider a short sale or begin the short sale process without the help of an experienced short sale attorney, who can carefully examine your total financial circumstances and advise you about the process and consequences of attempting a short sale under your specific circumstances.
At The Law Offices of Neil Crane, L.L.C., we can help you determine the best solution for your unique situation. We can advise you and negotiate with your lender to satisfy your mortgage loan for a property sale amount "short" of the loan balance, in order to relieve you of your mortgage shortfall and your monthly payments. Additionally, we can work to protect you from the tax consequences of a short sale through proper application of certain Internal Revenue Code (IRC) provisions and the Mortgage Tax Forgiveness Act.
To learn more about protecting your financial future, call the expert short sales attorneys at the Law Offices of Neil Crane at 203-230-2233 or toll free at 1-888-249-3027.