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How will a short sale affect my credit?

A short sale is a voluntary agreement between you and your lender/investor. Together you will work to sell the home for a much money as possible.  The bank will determine if the difference owed will be collected from you or waived. They will then report your short sale to the credit bureau as an unpaid loan. Your credit score can be changed from a minor hit to a major loss. It is recommended you talk with your lender as soon as you know  you are having problems. They are very anxious to help you.
older couple with calculator and piggy bank

What are the tax consequences of a short sale?

When you enter into a short sale, you will need to get a good accountant working on your side.  The IRS  may require you to claim the deficiency on your short sale  as income.  (The difference between what the home sold for and the amount remaining unpaid). Imagine you get hit with a tax bill because you were forgiven $50,000. There are government programs that have been implemented in the past few years to help, but you need to know what they are, which form to fill in, and when. Get with an accountant to help you answer these questions.

Can a person participate in a short sale if they have not missed making their mortgage payments?

The best thing to do is get with your lender and talk to them. Explain your problem. If you are still current, but realize in a few months you will have to stop making payments, let them know. They have special lines set up now to help people with their problems. There are many programs that they can advise you on.  Lenders are all different, and each lender may have merely been servicing your loan for their investor. So, there are many circumstances involved with each loan.

How late in the pre-foreclosure process can you start a short sale?

Again, you need to talk with your lender. They can tell you if there is a sale date set up already. A sale date means they are ready to sell this home to the highest bidder. You can ask the individual lender what their policy is on receiving a contract. Some lender will accept a contract on the home a day before the sale. Other lenders will require a 10 day window prior to the sale date.

Does a lender have to review a sale if the offer price is equal to or above the listing price?

The listing price is merely a price the Real Estate Broker and the seller have agreed on. The lender does not get involved at this point of the short sale. Once a contract is received and sent to the lender, the process begins with the lender. There will be an appraisal ordered to determine the value of the home by the lender. Once the bank and investor have reviewed all the information (your financials and the home value) they will send you and your Realtor a letter explaining what they will accept without exception most of the time.  Then is when you will know what the lender will approve for the short sale of your home.