Some agents are fairly diverse in their real estate specialties, and some are very focused and do not branch out into more complicated deals. I have chosen to be diverse in order to have the ability to serve a greater number of clients in varying situations. One of those happens to be Short Sales. A short sale is when the mortgage lender or lenders, choose to take less for the total amount of the current payoff. This allows a homeowner to sell the property for less than what they owe.

 

This is not my primary business, but for the last 6 years, I have been doing more & more of them due to our difficult market & the high number of adjustable mortgages that people had trouble with. I have also done them for folks who have lost jobs, divorced, moved out of state, etc. I must make mention that I have seen the aftermath of more than one divorce settlement, in which one spouse made a payoff to the other for one half of what was determined to be the home’s equity at that time. Consequently, the spouse who kept the house, found that they are now upside down because the valuation was incorrect or the market had depreciated.

 

In the past, a homeowner had to be delinquent on their mortgage in order to be able to qualify for a short sale. More and more banks however are accepting short payoffs, without a delinquency. I closed one of those in March 2008 in Aurora, Colorado in which the bank took $115,000 for a $178,000 note. My client was relieved to be able to walk away from this house after having moved out of State unaware that she would have so much difficulty in selling her home in a declining market. I will not attempt an explanation on how this will look on her stellar credit rating but would invite any responses from people who are comfortable with sharing facts.

 

DO NOT think that people are walking away with no consequences of a Short Sale. There can be financial implications. The amount that the lender does not receive on what they are owed is a Deficiency. This deficiency is also created when a property goes all the way through foreclosure. The lender can chose to seek a Deficiency Judgment against the borrower or they can chose to write off the amount. If they write it off, that amount would be considered income and the lender would send a 1099 which could create a tax implication. I have heard that recent foreclosure laws might be giving relief of this tax consequence to some individuals but this is something that I am not qualified to be specific with. Attorneys & CPA’s should be consulted about the financial & legal implications of a short sale as I am simply explaining the basics based on personal experience.

 

For those who are having a tough time, a short sale can be a way of getting away from a financial burden. Lenders are trying to help restructure loans so this option should be exhausted before working in the direction of a short sale. A short sale can also be attempted even after receiving a Notice of Election and Demand from the County Trustee announcing that foreclosure proceedings have begun, so it is never too late to contact a Realtor versed in short sales to discuss listing the property.