Our offices are enthusiastic about short sales in real estate and represent sellers in this process.  But to answer a few rudimentary questions, we present the following information.

In the past, a “short sale” was a term associated in most people’s minds with shares of stock -- as the sale of a security by an investor who did not actually own the stock.

However, in the last few years, a “short sale” has evolved into another meaning associated with real property sales.  From a legal perspective, “short sales” do not exist. They only exist if a lender permits them to exist.

A “short sale” occurs when a property is sold and the lender agrees to accept a lesser amount on the mortgage (a discounted payoff), meaning the lender will release its mortgage lien on receipt of less money than is actually owed.

Capitalizing on vulnerable homeowners, mortgage fraud schemes have reached epidemic levels. The schemes have included securing new mortgage loans using land flipping; identity theft; false appraisals; investor “family trusts” for the benefit of the fee owner; “save your credit / quick fix”; and any number of scams to effectuate the fraud. The “programs” are illegal scams created to “discharge” existing mortgages of record so that replacement mortgages can be obtained on the “lien free” property.

Please see the report posted on the New York Attorney General's website October 8, 2009, announcing the take down of a twelve member mortgage fraud ring that defrauded homeowners of millions of dollars

Beware of anyone recommending such a "fix-it" scheme -- especially when it appears too good to be true - or so inexpensive, you think, "Why not?"  Our offices receive phone calls from homeowners after they have entered into these agreements.  For what appears to be very little money, they are given a promise of a loan modification but learn that it will take thousands more to have the company continue the process.

Legitimately an attorney can assist a homeowner to perhaps convince a lender to allow a short sale.

If you are considering a short sale, three things are important to evaluate: 

1. Market conditions;

2. How great the shortfall on the loan is;

3. And whether the lender is an independent bank, a commercial bank, or a government lender - each have different standards.

The lender will of course want the most amount of money to satisfy the loan. The lender will most likely request an appraisal of the property to help determine the property’s current market value and the legitimacy of the buyer’s agreed-to purchase price.

There are horror stories from real estate brokers of months of dragged-on discussions, lack of returned phone calls, and ultimately no deal. Usually much of the delay came about because of misinformation to begin with; the wrong persons contacted; and general lack of organization.

The Law Offices of Michele A. Peters usually receive an answer within a month's time.  We are prepared to evaluate the needs of the client and prepare the way to assist in effectuating a “closed” short sale.

How does a short sale affect my credit rating?

According to the FHA, if the borrower was delinquent at the time of the short sale, they must wait 3 years to be eligible for an FHA mortgage in accordance with the requirements outlined in para. 2-3 (d) of the 4155.1 REV-5 Handbook. If they were current at the time of the short sale and the new lender has documentation evidencing no further liability, then they would not have to wait 3 years.

The credit agency, Experian, has further information regarding credit and how a short sale can affect a borrower's rating.

The Law Offices of Michele A. Peters will work to have any deficiency waived for a primary home owner (according to law) and to have any personal liability removed -- together with the short sale being recorded as a satisfied debt.

-------

The Mortgage Forgiveness Debt Relief Act of 2007, includes a host of provisions not connected to mortgage forgiveness relief, but it does exclude from gross income, the discharge of “qualified principal residence indebtedness.”  There are limits to debt forgiveness - one million dollars for a single borrower, and up to two million dollars for a couple.

In July 2008, the American Housing Rescue and Foreclosure Prevention Act of 2008, was enacted. The Rescue Act also carries a number of tax changes, including, but not limited to, tax breaks for first-time homebuyers.

Please speak with your accountant as to how you might benefit from these laws.

The Internal Revenue Service's website is the most valuable resource for understanding tax ramifications in foreclosures and short sales. This is one of the many links to the site which details information for consumers.  IRS Newsroom.