Doing a Short Sale on an Upside-Down House

(PRBuzz.com) May 31, 2012 -- All too often home owners think they can short sale a house just because it is no longer worth the amount of the outstanding loan. However HAFA, Fannie Mae, Freddie Mac and all servicers see things very differently. All of the following situations must exist in order to qualify for a short sale and possibly get final approval:

Comparable sales from the last 6 months must indicate the house is currently valued for less than what is owed on it.

A hardship must exist that keeps the seller from paying the monthly note and possibly from paying the shorted amount. A letter that details the hardship and proof of the hardship must be provided to the servicer. (Personal decisions and preferences are not hardships. Divorce, unemployment, medical issues, bankruptcy or death are examples of hardships with real financial impact.)

The seller must not have assets that would allow him to pay the monthly note or the shorted amount. If assets can be liquidated there will be no short sale approval. Depending on other circumstances the lender may approve the short sale, but will require the shorted difference or a discounted portion to be paid back.

The mortgage is already in default or is very near to falling into non-payment.

Because of the consequences of a short sale, this is not the solution to an upside-down house note.

If the lender agrees to the short sale, the lender may possess the right to issue a 1099 for the shorted difference, due to a provision in the IRS code about debt forgiveness. The IRS will tax the home owner on the shorted amount reported on the 1099. For true hardship situations, according to the Mortgage Forgiveness Debt Relief Act of 2007 the amount of the shortage may be exempt from taxation. Only a real estate lawyer or tax accountant can determine your eligibility for the exemption and your tax liability.

It's just not true that a short sale is a 'get out of jail free' card when it comes to your credit report. A short sale may be frowned upon by creditors just as much as a foreclosure. The short sale will be reported differently than a foreclosure, but your FICO can still drop significantly. Fair Isaac released a report that showed credit scores were affected about the same for both a short sale and a foreclosure.

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

About Duffy Realty of Atlanta and Rhonda Duffy:

Rhonda Duffy is the documented #1 Agent in Georgia - 8 years in a row in for both SOLD properties and Short Sales. She uses a proven method of processing short sales that leads towards efficiency and respect from the lenders. Her calculated approach to the pricing of the property as well as her proprietary system for paperwork and contract negotiation leads her homeowners to success in getting their home sold to a buyer who gets a great deal from the lender. The lender is happy with the sale, and the homeowner is on their way to a brighter future.

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Company: High In the Trees, A Management Company
Contact: Frank Edward
Phone: 770-367-2642
Email: high.in.the.trees@gmail.com

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