Do I Qualify for a Short Sale?

Qualifications for a short Sale

Consider the following to determine whether you may qualify for a short sale. If you cannot answer yes to all four requirements, you may not qualify for the short sale.

• The Home’s Market Value Dropped.
  Hard comparables sales must substantiate that the home is worth less that the unpaid balance due to the lender. This unpaid balance may include a prepayment penalty.
• The Mortgage is in or Near Default Status.
  It used to be that lenders would not consider a short sale if the payments were current, but that is no longer the case. Realizing that other factors contribute to a potential default, many lenders are eager to head off future problems at the pass.
• The Seller Has Fallen on Hard Times.
  The seller must submit a letter of hardship that explains why the seller cannot pay the difference due upon sale, including why the seller has or will stop making the monthly payments.

A few examples of hardship are:
• Unemployment
• Divorce
• Medical emergency/ Sudden illness
• Bankruptcy
• Death

• The Seller Has No Assets
  The lender will probably want to see a copy of the seller’s tax returns and/ or a financial statement. If the lender discovers assets, the lender, may not grant the short sale because the lender will feel that the seller has the ability to pay the shorted difference. Sellers with assets may still be granted a short sale but could be required to pay back the shortfall.
  
  For example, if the seller has a significant amount of cash in a savings account, may own other real estate, bonds, of even an IRA account, the lender may determine that the seller has assets. However, the lender might discount the amount the seller is required to pay back.

Short Sale Consequences

A short sale is dependent on a buyer making an offer to purchase. If you do not receive an offer, you will not qualify for a short sale. So even if you meet all the other criteria, it is possible that no one will buy the short sale. It is also dependent on the lender accepting the buyer’s offer. If the lender rejects the offer, a short sale will not take place.

• Tax Consequences
  If the lender agrees to the short sale, the lender may possess the right to issue you a 1099 for the shorted difference, due to a provision in the IRS code about debt forgiveness. Many situations are exempt from debt forgiveness, according to the Mortgage Forgiveness Debt Relief Act of 2007.
  
  You should speak to a real estate lawyer and a tax accountant to determine the amount of short sale consequences, and whether you can afford to pay the taxes, if any.
• Blemished Credit Report
  A short sale will show up on your credit report. It’s a pre-foreclosure that has been redeemed. Short sales affect credit ratings. While the damage to your credit report may not seem as significantly bad as a foreclosure to you, creditors may not make the distinction.

Always seek legal counsel before attempting to pursue a short sale. A real estate agent cannot give you legal advice.