What is a “Real Estate Short Sale” What is Required for a Real Estate Short Sale?
Debt Forgiveness: Frequently asked Questions & Answers (Q&A):

What is a “Real Estate Short Sale”

Do you owe more than your home is currently worth and you need to sell your home? If so a real estate short sale may be the service you need.

A real estate short sale is when you owe more than your properties current value but you need to sell. In a typical situation, your mortgage lenders would require you to come in with the difference in the amount owed. A real estate short sale is where we negotiate with you lenders to accept a pay-off that is less than you currently owe and you do not have to pay the difference; in other words – your debt is usually forgiven.

We have a team of experts in every aspect of the real estate transaction, sales, FHA certified processors, short sale negotiators, mortgage originators and title agents. If you’re thinking about short selling your home and need the help of a professional – with more than 25 years of experience, call me (407) 702-5243. FREE CONSULTATION – AND YOU PAY NOTHING FOR OUR SERVICE!!!

If you’re like 72% of homestead homeowners in Florida - who owe more than your home is worth and have either experienced a financial hardship or are in the midst of some kind of financial hardship, our agents will work to negotiate a lower payoff amount with your lender to get your home down to a price where it can sell, even in this difficult market. Foreclosure does not have to be an option! By virtue of the fact you can’t come up with the difference of what you owe and what your property is worth constitutes a financial hardship. Job relocation can cause this.

1.) You do NOT always have to be in default to do a short sale
2.) Our services are absolutely FREE for you; the lender pays our fees and closing costs in a short sale
3.) We are the most experienced professionals in the industry – and with more than 25 years of experience as a real estate broker, mortgage broker and title agency, it’s this kind of combination that gives us the success rate and satisfaction our customers have.
4.) We will aggressively market your home to help get it sold in a timely manner, and work very hard to get rid of your headaches and help make the deal go as smoothly as possible.

    1. Banks are being provided with government assistance to help homeowners sell their homes and will usually and completely forgive the debt
    2. Our short sale negotiations are usually completed within 30 – 60 days from the time we get a contract on your property

Experience is everything when it comes to short sales, the results from a lack of experience can be disastrous. We make short sales happen, when poorly experienced agents create a mess and foreclosures happen!

***Important*** If you are experiencing a financial hardship and must sell your home, ONLY use a licensed Real Estate Brokerage Company. Don't fall for the scam artists offering to "buy" your house, when they are only trying to enter into an "option contract" and tie up your home, resulting in countless foreclosures.

What is a “Real Estate Short Sale” What is Required for a Real Estate Short Sale?
Debt Forgiveness: Frequently asked Questions & Answers (Q&A):

What is required for a Real Estate Short Sale?

In order for us to get a real estate short sale accepted for you, we first must list your home for sale. During the listing period, you will need to provide the following documents to us so that we may package a real estate short sale request to your existing mortgage lenders.

    Documents required for Real Estate Short Sale

    Please gather the following:

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    Last two years tax returns with W-2's and any tax schedules
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    Most recent two months of paystubs
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    Most recent two months of bank statements for all your accounts, including retirement accounts, 401k.
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    Current mortgage payment coupons for existing mortgages
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    Copy of original mortgage note and deed of trust

    With these documents we create a package as to why you require a real estate short sale and submit this to the appropriate department at your lender, once we have an accepted purchase offer for your home.

    Who can qualify for a Real Estate Short Sale?

    Typically, the mortgage lenders will only accept a real estate short sale if you are at least one month behind on your mortgage payments; however, job relocation and being able to demonstrate a financial hardship which prevents you from being able to continue making your mortgage payments have been considered legitimate as well. You should also have a “ready and willing buyer” and you are unable to debt service all of your existing liabilities. Also, if your financial situation has changed and you are currently making less money than before and you have no more savings, you most likely qualify for a real estate short sale. This is the reason why we need the above documents to paint a clear financial picture of your current situation.

    Do you need a real estate short sale?

    If you owe more than you home is worth you need to sell your home, please contact us regarding our short sale services. Contact us via email with any questions mailto:help@arealtypro.com or by phone at: 407-366-0100 Mon-Fri. 9:00am - 8:30pm.

What is a “Real Estate Short Sale” What is Required for a Real Estate Short Sale?
Debt Forgiveness: Frequently asked Questions & Answers (Q&A):

Debt Forgiveness:

Here I am today reporting about the upcoming Home Affordable Foreclosure Alternative program from the Treasury Department that goes into effect April 5th, 2010.

The program is designed to help troubled borrowers who don't qualify for loan modifications.

It offers financial incentives to banks and borrowers to expedite short sales (when your bank or mortgage holder allows the home to be sold for less than the value of the loan) and deeds in lieu of foreclosure (when the borrower agrees to deed the house back to the bank without going through the foreclosure process).

Well when housing market crashed, and short sales and the idea of principal write down on loans gained momentum, we quickly learned of a snafu at the IRS.

Unfortunately any loan forgiveness would be counted as taxable income and the bank or mortgage holder and/or your servicing company will issue a misc-1099 income statement. This represents the difference between the amount owed to your lender and the amount your lender agreed to accept as a condition of the short sale – considered income to you…

That would cost beleaguered borrowers thousands of dollars after losing their homes! But no worries, Congress to the rescue; it quickly passed the Mortgage Forgiveness Debt Relief Act of 2007, which keeps homeowners from being liable for the debt that was cancelled by virtue of the short sale.

That law is in effect through 2012, and may not be continued… Click on the above link to learn more about “mortgage forgiveness” and definitely seek counsel from either a CPA or Tax Attorney.

What is a “Real Estate Short Sale” What is Required for a Real Estate Short Sale?
Debt Forgiveness: Frequently asked Questions & Answers (Q&A):

Questions & Answers (Q&A):

Around such a simple definition spins a world of confusion. Questions abound....some crop up more than others. The following Questions and Answers may help you determine what a Short Sale means to you and your situation.

Q. I owe $500,000 on my house which is now worth $350,000. My payment is going up and I can't afford the new payments so I want to move to another area and have to sell my house. Should I short sale it?
A. This is a good example of a short sale opportunity. If you have discussed a Loan Modification with your lender and determined that a Mod is not the right solution for you, then a Short Sale may well be. Just because you may owe more than your house is worth, doesn't mean you have to sell it. As long as you are comfortable and on-time with your mortgage repayment program, you are welcome to stay in your house as long as you like, eventually paying it off and at some point again, enjoying the typical appreciation that goes along with it.

Q. Does the bank sell my house for me in this case?
A. No, you have every right to choose the real estate agent of your choice and have him or her list your house for you at a list price that you establish based on current knowledge and what similar homes are selling for in your area.

Q. I heard that the I have to pay the bank the difference between what I owe and what it sells for or else the bank will 1099 me for the difference in amounts. Is this true?
A. By definition, A forgiveness or Cancellation of Debt from a lender to borrower can be reported on an IRS form 1099-C.
Exceptions are:

  • Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
  • Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.

  • Insolvency: If you are insolvent when the debt is knowledgeable, some or all of the canceled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.

  • Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your canceled debt is generally not considered taxable income.

  • Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.

Q. Ah OK, I heard of the Mortgage Debt Relief Act of 2007. How exactly would that apply to my situation?
A. Let's let the IRS answer that question in this series of Sub-Questions and Answers:

What is the Mortgage Forgiveness Debt Relief Act of 2007?
The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 (see News Release IR-2008-17). Generally, the Act allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence.

What does exclusion of income mean?
Normally, debt that is forgiven or canceled by a lender must be included as income on your tax return and is taxable. But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain canceled debt on your principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or canceled debts?
No. The Act applies only to forgiven or canceled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing separately.

Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home?
Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681.

How long is this special relief in effect?
It applies to qualified principal residence indebtedness forgiven in calendar years 2007 through 2012.

Is there a limit on the amount of forgiven qualified principal residence indebtedness that can be excluded from income?
There is no dollar limit if the principal balance of the loan was less than $2 million ($1 million if married filing separately for the tax year) at the time the loan was forgiven. If the balance was greater, see the instructions to Form 982 and the detailed example in Publication 4681.

If the forgiven debt is excluded from income, do I have to report it on my tax return?
Yes. The amount of debt forgiven must be reported on
Form 982 and this form must be attached to your tax return.

Do I have to complete the entire Form 982?
No. Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Adjustment), is used for other purposes in addition to reporting the exclusion of forgiveness of qualified principal residence indebtedness. If you are using the form only to report the exclusion of forgiveness of qualified principal residence indebtedness as the result of foreclosure on your principal residence, you only need to complete lines 1e and 2. If you kept ownership of your home and modification of the terms of your mortgage resulted in the forgiveness of qualified principal residence indebtedness, complete lines 1e, 2, and 10b. Attach the Form 982 to your tax return.

Where can I get this form?
If you use a computer to fill out your return, check your tax-preparation software. You can also download the form at IRS.gov, or call 1-800-829-3676. If you call to order, please
allow 7-10 days for delivery.

How do I know or find out how much debt was forgiven?
Your lender should send a Form 1099-C, Cancellation of Debt, by February 2, 2009. The amount of debt forgiven or canceled will be shown in box 2. If this debt is all qualified principal residence indebtedness, the amount shown in box 2 will generally be the amount that you enter on lines 2 and 10b, if applicable, on Form 982.

Q. Wow that is overwhelming, but it sounds like I am not responsible for the difference in what I owe and what the house sells for. Is that true?
A. In your case yes. The home was used as your primary residence and falls within the financial parameters of the Act.

Q. My neighbor bought his house with no money down and owes $550,000 on his home. He told me he hasn't made a mortgage payment in 6 months. Why doesn't he have to short sale his home?
A. It is hard to speculate on anyone's situation. If he is that far behind on his payments, there is a good chance that his house is being foreclosed on. If the bank repossesses his house, he will have no right to attempt to short sale it.

Q. If I can live in my house and not pay my mortgage, why would I want to short sale it.
A. A short sale on your home will adversely affect your credit, to the tune of between 200-300 points. However, Fannie Mae guidelines allow you to purchase a home 2 years after a short sale. Many speculate that home prices will be most affordable over the next 2-5 years. If your home gets foreclosed on, your credit score will additionally be knocked down hundreds of points. However, Fannie Mae guidelines currently require someone with a foreclosure on their credit to wait 5 years before being able to purchase a home again. There are many other factors to consider when deciding whether to do a short sale or foreclosure. You should always contact a real estate attorney and a knowledgeable CPA to determine how both will affect you personally.

The most important information I can impart to anyone who owes more on their house than what it is worth is this...YOU HAVE OPTIONS! If you have concerns or questions about your specific situation, call me at 407-702-5243 for a free, no cost consultation. I will be happy to discuss your options with you, and if I can't help you, I promise I will do my best to direct you to someone who can.

Are there any publications I can read for more information?
Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals) is new and addresses in a single document the tax consequences of cancellation of debt issues.
(2) See the IRS news release
IR-2008-17 with additional questions and answers on IRS.gov.

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