SHORT-SALE TRANSACTIONS

Short Sale / Pre Foreclosure Sale – If you simply can no longer afford to stay in your home and a loan modification will not work for you, we can assist you in selling your home. While the decision to sell your home under these circumstances is not an easy one, it may be the best decision for you and your family. A Short Sale occurs when your home is sold for less than the amount you owe on your mortgage, and your lender agrees to accept the lesser amount as a full pay off. We are licensed Realtors who will actively market your property, work with your lender, and try to sell your property in order to avoid a foreclosure.

The following are a few items that Sellers should learn about with regards to a Short Sale transaction:

Pre-Listing Considerations – A seller should know the ramifications of a successful short-pay agreement with the lender. Aiello & Associates is advising Seller to seek tax and legal advice before signing the listing agreement.

A) Taxes; The seller will be obligated to pay taxes on any debt forgiven by the lender. The IRS considers debt forgiveness as ordinary income. Consequentially, the difference between the loan amount and the short-pay agreement will be taxed at the seller’s ordinary tax-bracket.

B) Credit; A lender may handle a short pay in a number of different ways. It can report the loan as paid in full, which would have no adverse credit consequences. A lender may also report the loan as being “Satisfied” or “Settled”. Future Lenders and credit reporting agencies may consider satisfied or settled loans as being similar to a deed in lieu of foreclosure.

C) Financial Disclosures; A seller should know that a lender would likely require detailed financial statements from the seller as a condition to approving a short pay. Often, less-than-accurate information from the seller was used to obtain the loan the seller now cannot afford; so this may cause a seller to refuse to divulge accurate financial statements.

D) MLS; The listing agreement as well as the MLS information will show that the property is subject to a short sale and will be subject to Lender approval.

These points are by no means an exhaustive list of the considerations involved in a short pay as each transaction and lender requirements are different.

Important Considerations

A “Short Sale” occurs when the debt secured by a property offered for sale exceeds the net sales price. Under this scenario, one or more Lenders who have a note secured by the property offered for sale may accept less than the actual amount owed. In light of the possibility of a Short Sale of the Property, Seller is urged to consider the following:

Seller(s) Urged to Consult with CPA, Attorney & Credit Specialist: Broker will not provide tax advice, credit advice and/or legal advice regarding the marketing and sale of the property. Because of this, Broker urges Seller to consult with a Certified Public Accountant, Credit Consultant, and an Attorney(s) specializing in real property, taxation and bankruptcy issues before accepting any offer to sell the property. To the extent Seller fails to obtain the foregoing advice, they are acting against Broker’s advice.

No Guarantee of Short Sale and/or Sale of Property: While Broker will undertake their best efforts marketing the Property offered for sale, and seek Lender(s) approval of a short sale, Seller is advised that Broker does not guarantee that the Lender(s) will approve the Short Sale and further that a sale of the Property offered for sale will close escrow.

Negative Tax Implications: When a cancelation of debt occurs, the Internal Revenue Service (“IRS”) will treat any unpaid amount owed by the Borrower as taxable income. This means that the difference between the total amount due to fully satisfy a loan and the amount actually paid to fully satisfy the debt will be taxable. This will cause a Form 1099 to be issued, thus resulting in additional tax liability to Seller(s). Because of this, Seller is urged to consult with a Certified Public Accountant to review all tax and accounting issues relating to the sale of the Property.

Negative Credit Implications: When a Lender(s) accepts less than the amount owed to them, this is negatively reflected within the Seller/Borrower’s credit history, diminishes their ability to obtain future credit and/or increase the costs of future credit.


Related Topics: See Loan Modification and Short Sale process flowchart

If you are in a Short-Sale situation, we may be able to assist you.

Contact us for a Free No Obligation Consultation! or complete the Short Sale Form form and we will get back to you.