Understanding Short Sales
Short sales are becoming a common way for homeowners to sell their homes when they find themselves in a situation in which they have to sell and they owe more than the house is worth in this market. Short sales are a complicated and lengthy process and there are many aspects of them that homeowners should consider before deciding a short sale is the best course of action for them. Below are some of the frequently asked questions about short sales:
What is purchase money and non-purchase money deeds of trust? Purchase money is the money you borrowed to buy the home and is considered non-recourse debt. Non-purchase money is debt on your home from a refinance of the home and can be recourse debt.
What is non-recourse and recourse debt? A home non-recourse loan states that in the event of the foreclosure, the bank can only take the home as collateral and cannot take any further legal action against you. It is still unclear whether banks can file a deficiency judgment against the homeowner in the event of a short sale of the property. Recourse loans are loans that allow the lender to come after the homeowner for the amount owed (or a portion of the amount) – even if they have taken back the property. If there is default on a recourse loan, the lender can bring legal action against the homeowner and garnish wages etc. to collect the amount owed.
How do you ensure that the banks are not going to file a judgment against you after a short sale? You make sure that through the short sale negotiations, you get what is called full settlement language. With full settlement language the bank states that the terms that have been negotiated give full and final payment of the debt and that they will not file any future deficiency judgments against you for the money forgiven by them.
How do you know if you will qualify for a short sale? There has to be a seller hardship such as loss of job, divorce, required move etc. and the hardship has to fully documented for bank review and approval.
Will I be taxed on the forgiven debt? In some cases the debt is not taxed, but it is important that you talk to the IRS or a tax advisor to get the answer that appropriate for your situation.
What lenders are easiest to work with to negotiate a short sale? According to a specialist in short-sale negotiations, the following are the most reasonable and fastest banks to work with:
Wachovia
Aurora
IndyMac
EMC
Wells Fargo
Which banks are the hardest to negotiate short sale terms with? The short sale specialists finds the following lenders to be the least reasonable and take the longest:
Chase
WAMU
CititMortgage
Credit Unions
US Bank
Countrywide
What if I have a first and second note on my house? Both loans have to be approved by the banks in order for the short sale to be approved for a sale.
Will the lenders ask me to pay for a portion of the debt? Lenders will ask borrowers to pay a portion of the loan depending on what they perceive as the borrower’s ability to pay. It is especially common for the second note holder to ask for some homeowner contribution.
What is the percentage of short sales that get approved by banks? The percentage of short sales that are successfully negotiating is definitely increasing as everyone understands the process more. Currently it is about 30%-40% nationally. Currently 30%-40% of short sales are approved nationally.
If you are considering a short sale, feel free to contact us to answer further questions and to advise you of your home’s current value.
Short sales are becoming a common way for homeowners to sell their homes when they find themselves in a situation in which they have to sell and they owe more than the house is worth in this market. Short sales are a complicated and lengthy process and there are many aspects of them that homeowners should consider before deciding a short sale is the best course of action for them. Below are some of the frequently asked questions about short sales:
What is purchase money and non-purchase money deeds of trust? Purchase money is the money you borrowed to buy the home and is considered non-recourse debt. Non-purchase money is debt on your home from a refinance of the home and can be recourse debt.
What is non-recourse and recourse debt? A home non-recourse loan states that in the event of the foreclosure, the bank can only take the home as collateral and cannot take any further legal action against you. It is still unclear whether banks can file a deficiency judgment against the homeowner in the event of a short sale of the property. Recourse loans are loans that allow the lender to come after the homeowner for the amount owed (or a portion of the amount) – even if they have taken back the property. If there is default on a recourse loan, the lender can bring legal action against the homeowner and garnish wages etc. to collect the amount owed.
How do you ensure that the banks are not going to file a judgment against you after a short sale? You make sure that through the short sale negotiations, you get what is called full settlement language. With full settlement language the bank states that the terms that have been negotiated give full and final payment of the debt and that they will not file any future deficiency judgments against you for the money forgiven by them.
How do you know if you will qualify for a short sale? There has to be a seller hardship such as loss of job, divorce, required move etc. and the hardship has to fully documented for bank review and approval.
Will I be taxed on the forgiven debt? In some cases the debt is not taxed, but it is important that you talk to the IRS or a tax advisor to get the answer that appropriate for your situation.
What lenders are easiest to work with to negotiate a short sale? According to a specialist in short-sale negotiations, the following are the most reasonable and fastest banks to work with:
Wachovia
Aurora
IndyMac
EMC
Wells Fargo
Which banks are the hardest to negotiate short sale terms with? The short sale specialists finds the following lenders to be the least reasonable and take the longest:
Chase
WAMU
CititMortgage
Credit Unions
US Bank
Countrywide
What if I have a first and second note on my house? Both loans have to be approved by the banks in order for the short sale to be approved for a sale.
Will the lenders ask me to pay for a portion of the debt? Lenders will ask borrowers to pay a portion of the loan depending on what they perceive as the borrower’s ability to pay. It is especially common for the second note holder to ask for some homeowner contribution.
What is the percentage of short sales that get approved by banks? The percentage of short sales that are successfully negotiating is definitely increasing as everyone understands the process more. Currently it is about 30%-40% nationally. Currently 30%-40% of short sales are approved nationally.
If you are considering a short sale, feel free to contact us to answer further questions and to advise you of your home’s current value.
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