What is a Short Sale?
Understanding a short sale…
A ‘short sale’ or being ‘under water’ on your home in RI real estate refers to the ‘shortage’ of monies the (on your mortgage) lender will be shorted on a home if you sold it at current market price. The home’s market value has fallen below the amount the homeowner owes the Bank on their mortgage. In this situation the homeowner can no longer pay the mortgage on the home for a variety of hardship reasons ( loss of job/hours cutback, medical issues,divorce, job relocation, etc.). The approval means the bank agrees to ‘forgive’, with qualifications, the amount owed on a home from this borrower.
As of February 2012, U.S. state attorney generals have reached settlement agreements with the 5 largest mortgage servicers in the Mortgage Settlement Agreement. Find out if this settlement will impact and or benefit you as a distressed homeowner.
The short sale home can be a waterfront, ocean front, luxury or coastal RI home for sale as well as a suburban or urban home. There is no discrimination on the size, location or amenities of a home when the borrower has difficulty paying the mortgage.
In order to proceed with a short sale, a real estate agent must put the house on the real estate market for the seller and get an ‘offer’ from a buyer that the seller accepts. The sales agreement is then presented to the seller’s lender for review. Ensure you use a real estate agent that is familiar with the negotiation, database and lender’s process. Experience by a real estate agent in this process is absolutely essential!
The lender instead of pushing for foreclosure with the seller will most times agree to a short sale. The lender experiences less of a monetary loss with a short sale then insisting on a foreclosure for the home. There are benefits to a short sale to know and a number of short sale conditions need to be met for it to occur.
Understand that another major financial reason you do a short sale ( i.e. medical issues, divorce, etc.) is to get a waiver of deficiency letter when the bank (your lender) agrees to the short sale for you. That means monies are forgiven that are in excess of the mortgage amount balance that you owe. Very important you understand this forgiveness of monies from the bank must be in a letter form and saved by you, the borrowers, forever! It is your gold ticket and that is why a good short sale real estate agent is worth their weight in gold. If you proceed with a foreclosure (and have no waiver of deficiency letter) instead, the bank can come after you and file a judgement to regain all monies you owed on your mortgage. This can happen years later when you may come into an inheritance or win a lottery draw. Heed my words…especially if you are going through a divorce.
Also, there can be tax implications from this forgiveness of monies from both the U.S.Treasury and the lenders/investors on the mortgage loan(s). Homeowners going through this process should consult their accountant and lawyer to understand any financial consequences to them.
UPDATE January 2015: The IRS has a new ruling on forgiveness of mortgage debt due to a short sale through short sales in 2014…if it is your primary home, capital gains will not enter the picture. The Mortgage Debt Forgiveness Act was extended by President Obama for sellers who completed a short sale in 2014. If it is your secondary home, the resulting forgiveness dollar amount will be taxed by the Internal Revenue Service as ordinary income. Always consult your certified public accountant to find out how the current IRS rulings on the mortgage forgiveness of monies by your bank impacts you and the most current tax implications. We do not know whether this act will be continued through the year 2015 at this time.
How is a seller that is underwater on their mortgage to proceed?
It is important to work with a Rhode Island short sale agent who understands the short sale process and has a ‘team’ (attorneys and negotiators) in place to move the transaction forward for the seller with the lender. Getting the paperwork in place and listing the home are the next step.
The ultimate goal is to get a short sale approval letter with a waiver of deficiency judgment for the seller. There are times the lender will want a promissory note on a compromised payment plan too to be paid back usually ‘interest free’ over years. However, I try with my team to limit it and to have the sellers pay no monies at closing. These are important points to discuss with your real estate agent and negotiator.
Ginny Lacey Gorman is a member of the U.S. short sale superstars group and does RI short sales throughout southern RI. I work hard and with success with a legal team in making the short sales happen successfully for my sellers. If you are under water on your mortgage, going through a divorce and you own a home or behind on your mortgage payments call me, Ginny Lacey Gorman, North Kingstown short sale agents, for a confidential interview and to find out your options at 401-529-7849 today. Do not wait – time is of the essence to stay out of foreclosure.
What is a short sale?
Ginny Lacey Gorman is your go to Rhode Island Real Estate Agent for real estate in Rhode Island and beyond…knowing the geographic area, schools, happenings, important tidbits of information and businesses well.
As a Rhode Island short sale agent, if you are having trouble paying your mortgage contact Ginny to help you through the short sale process successfully.
Waterfront, oceanfront, luxury and coastal RI real estate are her specialty but all of RI is her backyard. When you are in need of a good professional for your buying and selling needs and an internet savvy agent who sells RI houses in this real estate market – call Ginny at 401.529.7849.