Call us: Jack (408) 799-5979  Kevin (408) 568-6093 (中文)
Short sale

What is a Short Sale?

A short sale transaction is a sale of a property in which the outstanding debt (in the form of mortgages - such as purchase loans, refinance loans, home-equity loans, or one of the various other types of loans secured by your property) was more than the price for which the property was sold. A sale of this type requires bank/lender approval.

A short sale may be an option if:

  • The home's market value has dropped: Hard comparable sales must substantiate that the home is valued at less than the unpaid balance due to the lender. This unpaid balance may include a prepayment penalty.
  • The mortgage is in or near default status: In the past, lenders would not consider a short sale if the payments were up to date. Currently, lenders are eager to head off any future financing problems, no matter the payment status. A high risk of default will generally sway a lender toward accepting a short sale.
  • The seller has fallen on hard times: The seller must submit a letter of hardship that explains why they can not pay the difference due upon sale, including why the seller has stopped or will stop making the monthly payments.
  • The seller has no assets: The lender will probably want to see a copy of the seller's tax returns and/or a financial statement. If the lender discovers enough assets, they may not grant the short sale because the lender will feel that the seller can pay the shorted difference. Sellers with assets may still be granted a short sale but could be required to pay back the shortfall.

Some examples of hardships are unemployment, bankruptcy, divorce with the loss of income, or a medical emergency with the loss of income. Assets could be IRAs, savings accounts, or other real estate.

What are the benefits for seller?

  • You will remain in the property during the negotiation and short sale process (which can be as long as 4 – 6 months, or more).
  • You will have time to save money and make other living arrangements.
  • You will avoid foreclosure and eviction.
  • You will be able to negotiate and remove deficiency issues (more on this below).
  • You will limit the damage to your credit (as compared to a foreclosure).
  • It won’t cost you anything.
  • You could be eligible for significant cash incentives from the bank (ranging from $3,000 up to $32,000).

What are the consequences?

  • A short sale is dependent on a buyer making an offer to purchase. If you do not receive an offer, you won't qualify for a short sale. So even if you meet all the other criteria, it is possible that no one will buy the short sale. It is also dependent on the lender accepting the buyer's offer. If the lender rejects the offer, a short sale will not take place.
  • If the lender agrees to the short sale, they may possess the right to issue a 1099-C to the buyer for the difference (where the difference is viewed as income for the seller), due to a provision in the IRS code dealing with debt forgiveness. Many situations are exempt from debt forgiveness, according to the Mortgage Forgiveness Debt Relief Act of 2007.
  • You should speak to a real estate lawyer and a tax accountant to determine the amount of short sale tax consequences, and whether you can afford to pay those taxes.
  • While a short sale will not show up on your credit report, the loan status will. For those in default, it's a pre-foreclosure that has been redeemed, which is often reported as "Paid in Full for Less Than Agreed."
  • Short sales affect credit ratings. While the damage to your credit report may not seem as significantly bad as a foreclosure, creditors may not distinguish between the two.

What are different between Short Sale and Foreclosure?

  • Short sales and foreclosures can get homeowners out of paying for their mortgages.
  • Short sales are voluntary and require approval from the lender.
  • Foreclosures are involuntary, where the lender takes legal action to take control of and sell the property.
  • Homeowners who use short sales are responsible for any deficiencies payable to the lender.
  • Short sales allow people to repurchase another home, while foreclosures affect a more borrower's credit score.

Contact us for more detail

Jack H Tsai                 

BRE# 01759949             

Phone: (408)799-5979         
E-mail: jackhtsai@gmail.com   

Kevin Lin

BRE# 02091737

Phone: (408)568-6093
E-mail: linkevin369@gmail.com

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