What is a short sale?
A short sale is a transaction between you, a buyer, and the lender (the bank). When you fall behind on mortgage payments, and your property’s value is lower than the amount owed on the loan, a short sale is one process that can be used to stop foreclosure. Through negotiations, the lender agrees to settle the loan for less than what is actually owed, and the buyer purchases the home. This allows you to avoid foreclosure, and begin rebuilding credit much more quickly than with a foreclosure.
How does a short sale work?
A short sale is made possible when a lender is willing to take less than what is owed on the loan as payment in full. You’ll be required to submit information required by the lender to process a short sale. Once an offer has been made on the property the short sale negotiations can begin with the lender. Some lenders will begin the short sale process without an offer on the property.
How long does a short sale take?
Patience is key. Short sales in Colorado can take as little as 6-8 weeks, but can also be prolonged over several months. This depends on the bank, what type and how many loans you have, insurances or investors involved, when you receive an offer for the home, and if the transaction goes smoothly with the bank.
How much do your services cost?
Our services are available at no cost to you; our commissions are paid by the lenders. Some lenders, however, may require you to pay a settlement fee or sign a promissory note to offset their loss. Due to the high level of foreclosures, more banks are asking for settlement fees. These fees are not related to the services offered by Short Sale Colorado, but may be required for the lender to accept the short sale.
Who qualifies for a short sale?
Anyone who can’t make their payments, and whose home is now worth less than what is owed on the loan, is eligible to do a short sale of their home. The lender will have to approve the short sale based on your financial situation, however.
Are there any tax related consequences involved with a short sale? Will I Receive a Form 1099?
The Mortgage Debt Forgiveness Relief Act of 2007 states that you may have to pay some taxes. In most cases, however, there will likely be no tax consequences with a short sale. Prior to the 2007 legislation, it was possible to receive a Form 1099 after a short sale. The reason for this is because the amount of debt that was forgiven (the amount of money owed “lost” by the bank) was considered taxable gross income if the short sale was successful. In other words, if you bought your house for $200,000, and $160,000 was agreed upon for the short sale, the remaining $40,000 would be considered taxable income. With the new legislation, the $40,000 is typically not taxable.
If the property is not owner-occupied (if you aren’t living in the home), there may be tax consequences. The law also doesn’t cover homes that have been refinanced to take cash out of equity for other expenses, second homes or vacation homes, or rentals. Short Sale Colorado advises that you contact your CPA for more information regarding taxes and short sales.
Why will lenders do a short sale?
Lenders make money by loaning money. Foreclosure costs the lender more money than a short sale. The short sale process allows the lender to cut their losses by selling the house now, and not take the property back. Lenders can’t loan money for a property if they own it. The short sale comes down to a financial decision for the lender.
Will the Short Sale Always Be Successful?
Unfortunately, short sales aren’t always successful. Lenders aren’t obligated to agree to short sales, therefore we can’t guarantee that the transaction will be completed. Though short sales aren’t guaranteed, every possible effort is made to provide you with the best foreclosure help in Colorado. Just remember, there’s no charge for our services so you’ll never owe us a dime if your lender should decline to accept a short sale offer.