Imagine your home is worth $200,000, but you owe $220,000 on it. If you were to sell it in the open market at $200,000, you might net $184,000, or $36,000 less than what you need to pay off the loan. A short pay off is where your lender will forgive a portion or all of the short amount.
Just about all of them will, with justification. Justification might mean a substantial loss of income that would prevent you from paying on the mortgage, therefore being forced in a position to sell the home. Attempting to sell short so you can upgrade to a larger property is not justification. In addition, lack of cash reserves will also serve as justification. Don't expect to place your home on the market at 75% of market value and expect your lender to jump on any offers.
Depending on how you negotiate the transaction, it could go on your credit report as, "settled," or, "paid,"or "short payoff". It depends on the lender and how well you can negotiate.
Yes. If you have a Freddie Mac loan, Freddie Mac will probably want you to contribute to the short sale, get your agent to reduce brokerage fees, and get the buyer to take the property with the termites. Some lenders will just ignore you.
When you have an offer, all of the above should be enclosed with the offer (except for the marketing plan) plus the purchase agreement, and a good faith estimate as to what the lender will net after the close of escrow.
You are correct. If you're loan is current, you may be able to get a qualified buyer yourself. If your loan is delinquent, or in default, you don't have time to play around getting your home sold. You need as much exposure as possible.
This is one situation where "No," means, "Maybe, you just haven't convinced me that participating in a short sale is to my benefit." Keep hammering your lender, and do not take your home off the market until your lender agrees to a sales price and the prospective buyer has formal loan approval.
Most assets are traceable, except for personal collections (guns, coins, etc.). If you own another property, it will show up on your credit report. Your lender may back track to your original loan application to see if there are any other assets. No, don't hide assets. If your lender discovers you're not dealing honestly, they'll never co-operate.
A lot will say they can. There's no real way to tell if they can. If your home goes into foreclosure, you'll get flooded with a ton of mail. There's a good bet that most of the mail is from people who have helped out previously in these situations. One way to tell is if the person you're dealing with will ask you for the information outlined above. They'll know these are the requirements.
Actually, this is a good example of a misnomer in the foreclosure arena so this "real estate criter" is going to add it to the FAQ. There are no deficiency rights in California for Purchase Money Loans. This is the loan you obtained in order to purchase the property. Once you refinance the property, take out an equity line of credit, obtain a consumer loan that is secured by the property, this rule no longer applies. The lender has the right to go after you in a deficiency judgement, even if a senior lien holder takes the property back and a junior loses his security instrument.
When any lender agrees to a short pay, they are relinquishing their right to pursue the borrower in the future
Yes. According to IRS Section 108 a-e, there are debt/income interpretations that may come into play. The IRS may view the deficiency on a non-purchase money loan as income and demand you to pay taxes on that amount. If the short pay transaction resulted in a net loss of $20,000 to the lender, your tax liability could be around $6,350.
To limit your tax liability. In some cases (not Citicorp, Fannie Mae, or Freddie Mac) the senior lien holder will allow for some funds to be allocated to the juniors. If you allow the property to go into foreclosure, and the juniors lose 100% of their money, you can get taxed on the full amount. You should really contact a CPA concerning this part of the Tax Code.
Any feedback from other states would be appreciated. There are certain regions where FHA will not participate in short sales. One region is the state of California. If you are in foreclosure on an FHA loan in California, you may want to approach HUD to see if they will consider a lower interest rate, or some type of repayment schedule until you get back on your feet.