Short Sale Planning Tips for California Home Sellers

 

Here in Orange County, California, as many as one in seven people who have home mortgages are challenged with loans upside down (where property market value is less than what is owed on the home loan/mortgage). 

If you're thinking of selling your home with amount owed on your mortgage greater than the market price of your home, you are under water and facing a SHORT SALE.

A SHORT SALE can be positive and protect you from foreclosure and possible need to file bankruptcy.

See my prior article @ Sell Your Home Short Before Voluntarily Choosing a Strategic Default.

1.  CONSIDER A SHORT SALE FIRST.  If you are thinking of selling your home because of financial difficulties and you anticipate a short sale, consult with your REALTOR and your lawyer to consider options.  A SHORT SALE could be your best option if:

• Your property is worth less than the total mortgage you owe on it.
• You have a financial hardship, such as a job loss or major medical bills.
• Your lender and is willing to entertain a short sale.

2.  HIRE an experienced REALTOR® and other professionals.  You should hire a REALTOR® and consult with a real estate attorney with experience in short sales.  Choose someone who has a working knowledge of the short-sale process and who will promote and protect your best interest. 

Your REALTOR® would:

• Provide you with a comparative market analysis (CMA) or broker price opinion (BPO).
• Help you set an appropriate listing price for your home, market the home, and get it sold. 
• Ease the process of working with your lender or lenders
• Negotiate the contract with buyers
• Help you put together the short-sale package to send to your lender (or lenders, if you have more than one mortgage) for approval.  You can't sell your home without your lender and any other lien holders agreeing to the sale and releasing the lien so that buyers can get clear title. 

3.  GET PREPARED AND GATHER DOCUMENTATION.   Your lender will give you a list of documents it requires to consider a short sale, which short-sale "package" to support any offer would include: 

• Hardship letter detailing your financial situation and why you need the short sale
• Copy of listing agreement and signed purchase contract. 
• Proof of your income and assets
• Copies of your federal income tax returns for the past two years

4.  BE PATIENT.  Even if you're organized and have all documents in place, be prepared for a lengthy process.  Waiting for your lender's review of the short-sale package can take months. 

• If you have only one mortgage, the review can take about two months.
• With a first and second mortgage with the same lender, the review can take about three months.
• With two or more mortgages with different lenders, any possible approval can take four months or longer.

When the lender responds, it could approve the short sale and forgive some debt, make a counteroffer, or deny the short sale.  Your REALTOR® and real estate attorney can work with your lender's loss mitigation department to prepare proper documentation, promote your interest and speed the process.

5.  DON'T EXPECT THE SHORT SALE TO SOLVE ALL YOUR FINANCIAL PROBLEMS.  There are other things to consider:

• Your lender might approval the short request ask you to sign a promissory note to pay back the amount of your loan not paid off by the short sale.  Talk with an attorney about this about your rights and options.
• Any amount of your mortgage debt that is forgiven by your lender is typically considered income by the IRS, and you might have to pay income taxes on that amount.  However, under the U.S. Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act, homeowners can exclude debt forgiveness on their federal tax returns from income for some but not all loans discharged in calendar years 2007 through 2012. 
• California has similar law re state income taxes, and you should check with your income tax professional or lawyer to see if you qualify.
• Having a portion of your debt forgiven may have an adverse effect on your credit score.  However, a short sale will impact your credit score less than foreclosure and bankruptcy.  

 

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This is for information only and is not the providing of tax or legal services.  If you have questions about foreclosures and bank owned properties in California, contact an experienced REALTOR® in your city or area. 

Harrison K. Long - Business Solutions and Advisory - REALTOR® and broker associate, Coldwell Banker Residential Brokerage - 949-854-7747 (phone) - ExploreProperties@gmail.com (email) - CA DRE 01410855 - www.LiveAtNewportBeach.com  -  www.OCPropertyNews.com  -  www.CostaMesaLive.com  -  www.Irvine-homevalues.com  - www.NewportCoastLive.com   - www.CoastLivinghomes.com  - www.OCHomeValueGuide.com -  www.LiveAtIrvine.com  - www.ExploreOCHomes.com  -  www.LiveAtOrangeCounty.com  

"Helping People, Moving Forward, Developing Relationships and Protecting Property Values"  -  We list and sell Orange County, California, homes and properties.  We are involved with buyer and seller clients for short and foreclosure sales, certified by the National Association of REALTORs® as SFR, short sale, foreclosure property resource.  Thanks for contacting us with your ideas and questions.

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