Top 10 Short Sale Questions & Answers

1. I can’t make my house payments but I do have an ability to pay back all or part of the negative equity. Also, I want to preserve my credit score…is a short sale right for me?

That depends. If you want to keep the house, then  probably not. In cases where the seller can pay back all or part of the negative equity (usually to the 2nd lien holder) it makes sense to work out a repayment plan.See post Short Sale v Short Payoff.

On the other hand, if you are underwater and prefer to walk away, then you could opt for a short sale.

2. If I pay mortgage insurance and default on my loan, wouldn’t that cover the deficiency amount?

The mortgage insurance is not there for your protection; it protects the mortgage lender.

3. Do I have to have my home ‘Approved’ by my lender prior to offering it for sale as a short sale?

No. Technically speaking, there is no such thing as being ‘Short Sale Approved’. The actual approval only happens with an accepted offer.

4.I just missed a payment and I know I will miss more….how long does the foreclosure process take and is there time to do a short sale?

See  post  How Does A Foreclosure Work  In California? Practically speaking, it’s  taking 6+ months.Generally,  a well-priced short sale being processed by an educated short sale listing agent will sell and close in less than 120 days.

5. Will I still have to pay property taxes if I do a short sale?

Property taxes will always have to be paid as part of any accepted short sale. If you don’t pay the taxes, then the lender will.  Usually, though, lenders will NOT pay HOA fees, though not always. 

6. I owe more than my home is worth and I can’t make the payment, do I have to somehow qualify for a short sale?

The simple answer is NO. If someone can’t make their payment and they are otherwise insolvent they qualify for a short sale. Note: insolvent simply means their total debts are great than their assets.

7. Do I have to pay income taxes?I have heard that I will get a 1099. Will the loss the bank takes be treated as a taxable gain to me..the this true?!

It WAS true, now it’s not. Consult your Tax Attorney or Qualified CPA.Very recently the tax law was modified and now homeowners  who do a short sale on their principal residence will have no taxes due. However, this tax relief, granted by Congress, last only through 2012.

If the short sold property is an investment property, the homeowner will not have to pay taxes if he is insolvent.

8. How do you, my listing agent get paid? Who pays your commission?

The bank will pay the commission along with all the other usual closing costs.In return, the seller agrees to take no proceeds from the property.

9. Do I have to miss a payment to do a Short Sale?

No. That WAS true, but most major lenders accept short sale offers from sellers who have never missed a payment.

10. I want to do a short sale and have a 2nd mortgage, does this make me ineligible?

No. Both of your lenders will need to be satisfied in some way to complete the short sale. If your first lender will be paid off by the sale, then your agent must  negotiate the terms with the second lender. Most short sales do involve 1st and 2nd lien holder.  See post Short Sale v Short Payoff.

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