FAQs

 

 

Q.  Will I be responsible for the difference in the balance between what my property sells for and what I owe on the mortgage?

 

A.  In certain cases the bank agrees to write off or ‘forgive' the debt that remains on the mortgage after the short sale.  When that isn't possible we try to negotiate a re-payment amount significantly less than what actually remains, with small payments, with no interest.

 

 

Q.  What if I don't have a ‘hardship' to show to the bank such as a loss of income, reduced income, health crisis, etc?

 

A.  While the bank appreciates knowing you situation, some people prefer not to continue making payments on a depreciating asset already worth significantly less than they paid for it.  We have not experienced this being an issue with banks agreeing to sell short.  They would much rather do so than have the property go to foreclosure as the foreclosure process is costly and nets the bank significantly less in nearly every case. 

 

 

Q.  Why wouldn't I just let my property be foreclosed upon?

 

A.  In WA state, secondary debt is not eliminated in a foreclosure.  If you have any type of 2nd, 3rd, 4th, etc mortgages, they may all seek repayment from you after the property is foreclosed upon.  Homes sold at auction sell for considerably less than in a short sale in nearly every single case, leaving you with a greater deficiency you may be responsible for than if you'd chosen to sell short.

 

A foreclosure stays on your credit record for at least 10 years, with a short sale you are generally able to purchase another property within 2 years time. 

 

Many mortgage lenders consider a foreclosure worse than a bankruptcy when considering you for a home loan.

 

 

Q.  Will I be taxed on the difference between the mortgage I currently have and the short sale sales price?

 

A.  Congress has passed and President Bush has approved H.R. 3648, the "Mortgage Forgiveness Debt Relief Act of 2007." The legislation is effective for discharges of indebtedness on or after January 1, 2007 and before January 1, 2010. The Federal Bailout Legislation H.R. 1424, passed on October 3, 2008, extended this relief through December 31, 2012.

 

 

 

 Q. Yes I've lost significant value in my property but shouldn't I just ‘stick it out' for when the market rebounds?

 

A.  Consider these two scenarios:

 

Option 1

Homeowner can ‘stick it out' and keep the home.  They will continue to make their monthly interest only payment/ house upkeep of $4200 per month.  They will pay $50,400 per year to keep the home.  They are deeply ‘upside down' in the home with massive negative equity.  By late 2010 say, the home's value has stopped depreciating. The market stays flat for at least a year thereafter.  The inventory levels have to sell off. In late 2011 or early 2012 the market then starts to slowly appreciate again.  Best case the home starts to appreciate at 5% per year.  Based on this rough example it will take at least 7 years for that home to be worth what that owner paid in 2006.  During that time the homeowner will have paid $50,400 per year.  Do the math.  That's $352,800 spent to stay in the home and ‘stick it out'.

 

Option 2

Homeowner lists the home with an agent trained in doing short sales.  The home sells and the bank agrees to accept the loss in equity as the short sale.  Bank loses $150,000. Homeowner moves to a rental home in the same neighborhood and pays rent of $2000 per month.  Half of his previous house payment.  Homeowner saves the difference between what he had been paying for the owned home and his new rent payment. $26,400 per year.  Yes, the homeowner does have negative credit ramifications as a result of their short sale.  This negative credit will prevent them from buying a home for the next 18-24 months.  With this option he can sit out the real estate recession and jump back in when the market has hit bottom.  If he times it right he can buy at the markets bottom.  This time he will have a more significant down payment and a better quality mortgage.

 

Many home owners who are now short selling their properties are going to want to buy houses again some day; and when they do, lenders are going to want to make money lending them money to do so.