Homeowners call their banks and call their banks. Banks are not responsive to returning phone calls because they do have sufficient information on the homeowner’s finances to make a determination. Homeowners who have received loan modification are not satisfied with the meager reduction in their monthly payment. Some homeowners who are currently in a loan modification have to re-default due to unemployment/financial hardship and medical hardships, etc. Every short sale case is unique. If the homeowner paid too much for the house, it usually means the homeowner is paying too much to keep a roof over their head and that does not make sense when income goes down and exceeds income month after month.
Q: When will I be able to buy after a short sale?
A: Veterans are able to buy two years after a short sale. Non-veterans are able to buy three years after a short sale.
Conventional homeowners are able to buy right away if they stayed current during the short sale (consult a local loan officer for details).
Lease-option-to-buy programs are available right away depending on qualification.
Q: Will I need to pay income taxes on the forgiven mortgage debt?
A: According to the Mortgage Debt Relief Act of 2007, if you have sold your home for less than what you owe, you won’t have to pay income taxes on the difference (certain restrictions apply).
Q: Will my credit be ruined when I short sell?
A: Your credit score will suffer as a result of a short sale but the impact is different for everyone.
No one knows for sure exactly how much your credit will suffer when you short sell. There are many factors that determine your score. For homeowners who have not missed a payment during the short sale, their credit score will not decrease much.
Also, the way your bank reports the short sale to the credit bureaus will make a difference in the severity of the impact on your credit score. If your mortgage lender reports that your mortgage has been “paid in full,” then your score won’t be hurt as much as if it was reported as “settled for less than full balance.”
Q: Should I short sell now or short sell when there is foreclosure notice taped to my door?
A: For homeowners who are concerned about their credit, it must be understood that your bank will continue to report late payments month after month after your house is sold.
Q: When should I list the house for short sale?
A: Most homeowners are listing their homes for short sales as soon as they have decided not to make their house payment. Most banks will appraise the property and let the homeowner know what they will receive as relocation incentives once the short sale is completed. This relocation incentive is provided to the homeowner in the form of a check on the day the short sale closes and transferred to the new buyer.
Q: Is short sale the right decision for you?
A: It may be. If you have legitimate financial hardship to short sell, such as unemployment, under-employment (making less income than when you bought the house), if you owe more than what your house is worth and circumstances outside your control have created an inability to pay back the debt by the agreed upon terms, you should investigate whether you qualify for a short sale. Call your bank today to discuss foreclosure options. Next, if your bank suggests that you short sell it is time to call an experienced local real estate agent.
Q: What are my legal and tax implications after a short sale?
A: There are legal and tax implications to forgiving debt whether it is a short sale, foreclosure or bankruptcy. The only way to know how they will impact your specific situation is to consult with your local attorney and tax professional.
To be financially fit, get rid of your bad investment!
Annie Christian is a real estate broker and owner of The Annie Christian Real Estate Group. She helps with everything from buying and selling to foreclosure and short sale. To submit a question, call 351-5117. Her website is www.anniechristian.com.