What are the logistics of a short sale?

I've been researching it online and my lawyer brother even did a little research, but I'm not really understanding it. I thought that another bank buys your house for less than you owe and you can then end up owing taxes on the difference because they can count it as income, but that may not happen. Then the bank takes it and sells it.

If that's the case, why do so many homes online advertise that they are a short sale? We are considering doing a short sale, but I still don't really understand the logistics of it. And all the places we've called say they're really busy and they'll call us back but they haven't yet. We keep trying though.

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  • Anonymous
    1 decade ago
    Favorite Answer

    A short sale is when a bank agrees to allow a Borrower (home owner) to sell their house to someone else (usually NOT another bank) for less than the Borrower owes to the bank.

    The Borrower MUST agree to a short sale, because the bank will ask for financial information on which to base their decisions on whether or not to accept the short sale. So you can't "get a short sale house" unless the owner is still the owner and involved in the process.

    For instance, say a Borrower owes $100,000 to a bank. But values have fallen, or they borrowed too much to begin with (which happened when banks were giving out 100% and 120% loans). The Borrower has to sell, usually because they can no longer afford the house. Most (though not all) short sales happen after people stop making payments.

    They find a buyer that will buy the house for $80,000. If they sold the house traditionally, they would have to come to closing with $20,000. So instead, they ask (beg) the bank who holds the mortgage to allow them to sell the house for $80,000. If the bank says yes, then they are allowed to sell the house for that much, and usually, the banks also agree that they will NOT seek a deficiency judgment against the Borrower for the $20,000 difference. So the Borrower gets to sell his house and move on free and clear of the mortgage.

    It is possible that the bank will file a 1099 for the difference between the $100,000 the Borrower owed and the $80,000 they received as payment. However, with all the new laws, there are ways that can be sidestepped. Sometimes the banks will not send out the 1099s.

    I don't know all the Mortgage Debt Forgiveness laws so don't quote me, but I know there was one that "forgave" the amounts owed and did not count it as income from the 1099.

    "Washington, DC – Senate Finance Committee Chairman Max Baucus (D-Mont.) won passage today of legislation offering tax relief to American families caught in the subprime mortgage crisis. When debt is forgiven on a home loan, the homeowner must normally count that debt forgiveness as income and pay taxes on it. The bill approved today as an amendment to H.R. 3648 creates a three-year exception for debt forgiveness on home loans – helping families already unable to meet their mortgages to avoid incurring large tax bills as well. The bill also extends a provision allowing homeowners to deduct mortgage insurance payments from their taxable income."

    Feel free to contact me for more info at info@quickmls.com

    Source(s): Have done (and am doing) several short sales for clients. Investor/Broker for 11 years. http://www.homesalessandiego.com/blog/mortgage-deb...
  • 1 decade ago

    Basically a short sale dosen't have to be a Bank & the homeowner.. You can place your property on the market and ANYONE can make an offer.. Sometimes Investors will go in & make an offer but it dosen't have to be a bank.

    Yes it is for less than what you owe.. alot of times it's based on the appraisal if the current bank & investor will approve it.

    They used to 1099 homeowners forcing them to claim the difference on a short sale as income on thier taxes.. BUT I don't believe they do that any longer.

    If you call your lender & hopefully get a well-versed rep in short sales they will be able to walk you through thier process.. the hardest thing with short sales is they tend to take upwards of 90 days to complete & often the new buyer walks. It still is a MAJOR hit on your credit.

    Good luck!

    Source(s): Account Manager
  • Dale H
    Lv 4
    1 decade ago

    Call your mortgage servicer and explain the situation to them. They should be able to put you in touch with the right people internally to get the details of what needs to be done. Perhaps they would need to do an appraisal to establish the market value and go from there.

    You will still need to market the home for sale, but the difference would be that YOUR BANK has agreed to accept less than payment in full in exchange for the release that is required for you to convey the property to the buyer.

    Whether YOUR BANK attempts to collect the difference from you in the form of a deficiency judgement remains to be seen and that may be an issue that is addressed in state law as to what they are allowed to do. You may want to contact a real estate attorney to find out what you can expect.

    Good luck.

    Source(s): 7 years mortgage lending experience.
  • 1 decade ago

    You have an incorrect concept about a 'short sale', which is simply YOU, the seller, attempting to sell the property for less than you actually owe on the property. You will need the lender permission to do a short sale, since the lender must agree in writing to accept less from you than is owed on the property.

    You attempt to sell your house as you would any OTHER time, save for the lender permission required.

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  • 1 decade ago

    This sounds like a foreclosure sale. At any rate, there should have been an appraisal report done esp. if it ends up back on the market for more money than what the bank bought it back for. It would depend on what kind of shape the house was in when you left and if any improvements were made to make the house sell for more than what you paid for it.

  • Anonymous
    1 decade ago

    YOU!!!!! are taking the easy way out. BUT!!! it will come back to hurt you. BAD.

    By letting it go into forclosure, you WILL owe the bank the difference, you will not be able to buy another house in 5 years AND the IRS will tax you on the bank's lose.

    Rent it out. Stop blaming the "friends" and the lender. You KNEW what you were doing. You said so yourself in your other post.

  • 4 years ago

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