“Short Sale” may provide an option to foreclosure By Mike Carter, Broker-Owner/Realtor With the recent changes in the real estate market, many homeowners have found themselves in a tough financial situation. The “nothing-down” 80/20 mortgages that were used to purchase a home over the last few years may have made sense at the time, but now the home may be worth less than what’s owed, due to declines in market values. Unfortunately, some owners can’t wait for the problem to resolve itself over time through property appreciation; they need to sell now, either because of financial hardship, a job loss or divorce, or because they need to relocate for a new job. One option for a seller is a “short sale”. A short sale occurs when the net proceeds from the sale of a home are not enough to cover the seller’s mortgage obligations and closing costs, and the seller is unable to cover the difference. The Realtor’s job is to negotiate for the seller and show the lender that it is in the lender’s best interest to accept the short sale versus foreclosing on the property. Obviously, lenders don’t like to take less than what they are due, but they also don’t like to foreclose a non-performing loan. There are legal costs, repair costs to the property, remarketing and carrying costs, and the uncertainty of getting the highest price in a market already flooded with inventory. For the lender to agree to a short sale, the homeowner needs to provide a financial statement demonstrating a true financial hardship. Since the short sale process involves a lot of detailed paperwork, problem-solving skills, and persistence, a homeowner should utilize a professional who understands the process to achieve a successful conclusion. Some “upside-down” sellers think they can’t afford a real estate broker, so they try to sell the home on their own. Many don’t realize that in a short sale, the lender pays the broker’s commission. In a short sale, the home still needs to be placed on the market, a buyer needs to be found, and a bonafide offer received. Without a viable purchase offer, a short sale proposal won’t be considered by the lender. If the lender does agree to the short sale, the homeowner will not receive any money at closing, since the lender is accepting less than what they are owed. However, the homeowner will be able to avoid a foreclosure on their credit, which is a lot harder to clear than slow-pays. The lender could, but doesn’t always, pursue a deficiency judgment against the owner, or some lenders may, as a condition to the short sale, ask the seller to sign a promissory note for all or part of the difference between the proceeds of the short sale and the debt obligation. Homeowners also need to be aware that a short sale is considered a “forgiveness of debt” which may be viewed by the IRS as taxable income to be reported. A short sale is one way, with the help of a knowledgeable Realtor, to relieve the financial strain on families due to changes in the housing market. For more information or to confidentially explore a short sale option, please call Mike Carter at Assist-2-Sell, (904) 825-2800 or mcarter@assist2sell.com