What is a Short Sale on a Home or Condo?
A Reverse Mortgage can Cause a Short Sale of Your Home
Understanding a short sale…and it can occur when a reverse mortgage goes awry too (be careful on reverse mortgages)!
A ‘short sale’ or being ‘under water’ on your home in RI real estate refers to the ‘shortage’ of monies the lender (on your mortgage) will be shorted on a home if you sold it at current market price. In this case 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 (as well as real estate taxes,etc.) on the home for a variety of hardship reasons ( loss of job/hours cutback, medical issues,divorce, job relocation, etc.). An approval from the bank means the bank agrees to ‘forgive’, with qualifications, the amount owed on a home from this borrower when he attempts to sell it.
The short sale home or condominium 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! Ginny Gorman in RI real estate is your go to person on short sales and resolution.
Reverse mortgages need to be understood when a homeowner obtains this kind of loan(it is a LOAN) against your appraised value on the house. The amount you can receive from the lender is dependent on their requirements. If the house value falls due to the homeowner’s lack of maintenance, economic conditions for sale, etc. and the homeowner passes, the lender will want their monies within a short time period. Homeowners get into trouble and require a short sale when they take a lump sum from the lender and spend it unwisely. Maintenance of the upkeep of the home is one of the conditions in the mortgage. Short sales can ensue when the lender calls the loan in and the homeowner or heirs do not have equity in the home to pay the balance.
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: The IRS has a new ruling on forgiveness of mortgage debt due to a short sale through short sales…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. The Mortgage Debt Forgiveness Act was extended to January 1, 2026 within the IRS tax code. Consult your tax attorney and accountant to ensure the status of this code.
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 from the lender with a waiver of deficiency judgment for the seller. There are times the lender will want a promissory note on an agreed payment plan of monies 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.