The Pitfalls Of The Short Sale

Provided by Mortgage Market News
The Pitfalls Of The Short SaleThe Short Sale.

The new buzz word and opportunity for homeowners trying to dump their property for less than what is owed, is not the panacea for everyone. Yes they can be done, but it is in no way an easy proposition. One must take into account that a Short Sale is an “Open” negotiation to purchase property, and every aspect of the transaction is open to negotiation. Be aware that a Short Sale is nothing more than a negotiation to release the mortgage lien from the property so that title can be transferred. Here are some of the truths that sellers and buyers should be made aware of when considering this type of transaction.

1) A negotiated Short Sale could take several months for a lender to approve. With interest rates expected to only go up, some buyers might not want to wait.

2) The lender can counter the offered price and also stipulate that the buyers pay fees not customary with Hawaii transactions. These fees could include the buyer paying back property taxes, back HOA fees, paying commissions, and paying all of the Escrow and Title fees.

3) Once the lender approves the Short Sale, their terms might not be acceptable to the buyer. After waiting two months for the lender to approve a short sale, a buyer just cancelled their transaction because the lender required the transaction close in 30 days. The husband was out of the country and they would not be able to close in the required time frame.

4) A short sale does impact the seller’s credit rating. Depending on the payment history of the seller with their current loan, upon completion of the short sale the lender will report the mortgage to the credit bureaus differently. Deed In Lieu Of Foreclosure is one step up from foreclosure and is issued if the seller has stopped paying the mortgage during the short sale period. Paid In Full For Less Than The Full Balance will be issued if the seller has continued to make all payments on time. This rating will still have a major impact on one’s credit, and affect their ability to get another mortgage.

5) Upon completion of the short sale, the lender will issue a 1099-C and submit it to the IRS. Sellers should consult a tax professional to determine their individual impact.

6) Last, but maybe the most important item a seller needs to know is that the lender may and can require the seller to sign a separate promissory note to cover any shortage of what is owed to the lender.