The #1 Most Frequently Asked Question About Short Sales is:

 Does the homeowner have to be 90 days behind in payments to have the lender agree to do a short sale?
 Answer: NO  This is a really good question that is frequently asked by realtors and even attorneys with limited experience with short
 sales. The homeowner does not have to be behind in payments or in default. We have represented sellers who are not in default and
 have good credit - or who have continued making payments up until the short sale. The primary requirement to begin the short sale
 process is to have an offer to purchase BELOW the outstanding loan balance, supported by a either a loan Pre-approval (not Pre-
 qualification) if the buyer is applying for a mortgage to buy the home, or statement showing proof of funds if the buyer is making a
 cash  purchase. The secondary requirement is to have a reasonable hardship explanation to justify the short sale. 

General FAQ: (Important update - see question #18 regarding income tax on a short sale)

           1. What is a short sale?
           A short sale is when you get your lender (mortgage holder) to agree to release your mortgage liens so you can sell your home for
           less than what you owe.

           2. If I agree to sell my home in a short sale, can I still stay in my home during the process?
           Yes.  Even if you are behind in your payments, you can not be removed from the home unless through a legal judgment like a
           foreclosure. Also, foreclosure can be postponed if a short sale is in progress... but this depends on the negotiating skills of your short
           sale consultant to get the lender to agree to that. If you are foreclosed on, you need to begin moving as quickly as possible to avoid
           having the sheriff evict you and your contents.


           3. If I'm selling my home in a short sale or being foreclosed on, can I get my home back?
           The law in most states gives the homeowner every opportunity to stop the process leading to foreclosure, right up to the foreclosure
           auction date. In some states there is a period after the foreclosure during which the homeowner can redeem the property (right of
           redemption.). In New Jersey for example, borrowers have a right to redemption and/or objection within ten (10) days after a
           foreclosure.  HOWEVER - unlike a foreclosure redemption period, the short sale is considered final and there is no right of
           redemption. 


           4. What is the difference between short selling and short buying, and do you do both?
           Yes we do both.  Short selling is when we negotiate the release of  the mortgages for a homeowner. Short buying is when we get 
           retained by a buyer to negotiate a short sale in a specific area for the buyer...In either case, everything is contingent on the approval
           of the seller to allow us to represent their interests with the lender, and the lender approving our short sale terms. 

7. How do you get paid for your services?
There is NO out-of-pocket cost to the homeowner...our service is FREE to the homeowner. We get paid from the lender's proceeds at the sale. In other words, the lender will stipulate the maximum amount of closing costs allowed as part of their settlement. Our professional fee is included on the HUD-1 closing statement just like other fees.that could include for example the realtor's commission.  Fees that are permitted as part of the closing statement will vary depending on the lender's requirements.

8. I get a lot of investor solicitations and calls to buy my house or help me - how do I know I can trust you?
Trust is a major part of our relationship.  We work very hard to establish that and make sure you understand all your options before you begin working with us.  We understand how difficult it is for a homeowner, especially when you see all the signs on the telephone poles saying "We BUY Houses - No credit, No equity no problem...etc" . We don't rely on cheesy advertising to get clients.  Our credibility is solid because we rely on the referrals from other professionals like: attorneys, title companies, realtors, who have worked with us before.  And, we are not afraid to have you speak to any of them!

9. How long does it take to complete a short sale?
A short sale can be closed in as little as 45 days, or take over 6 months depending on the lender and the seller's circumstances.  The average in 2008 is 4 months.  If the foreclosure process has already begun, it can be completed quicker depending on the cooperation of the lender.  With so many homeowners in pre-foreclosure and foreclosure, the lenders are backed up.

10. If I complete a short sale on my home, will I owe any money after my house closes?
Possibly.  You could be asked by the lender to carry a seperate note for the relieved amount that you will have to pay back.  You could also have a judgment issued that will require you to pay back the relieved amount, fees and penalties...Also, the relieved amount is considered income to you and will require you to pay income taxes on the relieved amount the following year. However with our process, we make our short sales contingent on getting waivers in writing so no further amounts are due after the short sale. BUT - there are no guarantees and this all depends on the lender and investor for the loan.

11. Why would a lender consider doing a short sale?
Because they stand to lose a lot more money than the relieved amount vs. the overhead expense/legal costs of taking the home back in foreclosure.  An exception to that is if the home has significant equity, or if the home is in a location that is has growth potential.

12. I've heard that a buyer can buy the home directly from a bank and do a short sale.  How does that work?
This is a good question that is asked many times...unfortunately, this is not a short sale.  If you buy the home from the bank you are buying a bank owned property that was more than likely  a) foreclosed on, or b) taken back via a "deed-in-lieu". It is still possible to negotiate with the lender to buy the home, but after the lender incurs the expense of getting the property back, the prospect for completing a "short sale" like deal is reduced.  Also, at this point you will have more investors competing for that home, and the home will be bid up to get the best possible price....something that is not typical with a short sale.

13. Will I have to pay capital gains taxes if I sell a property as a short sale?
No.  Capital gains would indicate that you are in some way "better off" financially because of money you have made. In a short sale, you lose and owe money. The only thing you could possibly be accountable for is the deficiency amount - which will be reported as 1099 income and you WILL have to pay taxes on that, but not as capital gains.  However, some homeowners whose mortgage debt was partly or entirely forgiven may be able to claim special tax relief. Usually, canceled debt is considered taxable income. But the Mortgage Forgiveness Debt Relief Act of 2007 allows taxpayers to exclude debt forgiven on their principal residence if the loan balance was less than $2 million ($1 million for a married person filing a separate return).

14. We are about to buy a short sale from the bank and are wondering if the bank is responsible for ridding the house of mold or are we?
First of all, if you are buying a house from the bank, it's not a short sale. Second of all, in almost every case where there is a bank-owned property, it will be sold AS-IS. Check the verbiage of your purchase agreement with the bank (or seller). Any purchase agreement should contain a clause referencing who is liable for what. If you signed a purchase agreement that didn't reference the mold or "items required by the home inspection to be completed," then you will be liable. If you a re buying a short sale property, the home is being sold "as-is" most times. 

15. If I pay mortgage insurance and default on my loan, why wouldn't that cover the deficiency amount?
In some cases it will and in some cases it won't. It depends on the amount of the deficiency. Usually the mortgage insurance only covers a certain amount. Moreover, the lender will try to collect from you before they file a claim with the mortgage insurance company. The mortgage insurance is not there for your protection, just the lender's.

16. We had a first and second loan and went through foreclosure. The first was paid off and we were told the second would be forgiven. Now a collection company is coming after us for the second, what do we do?
The bank will never forgive one dime of debt unless it is explicitly stated in writing and you have it reviewed and confirmed by an attorney. The fact is a verbal agreement from the lender means NOTHING - YOU NEED EVERYTHING IN WRITING.  You're only recourse now is to engage in a legal dispute against them or file bankruptcy.

17. How long does the foreclosure process take?
Complicated question depending on what state you live in and what you consider the start of the "process" to be. Generally, the Bank will send the homeowner a NOD (notice of default) as per the State foreclosure laws. In New Jersey, the lender can file a NOD after 90 days being in default...from there it can take anywhere from 3 -10 months to foreclose depending on the lender..

18. Will I still have to pay income tax if I do a short sale and have the lender relieve me of debt?
Typically, the bank sends you a 1099a for the amount of debt they forgive you of in the short sale.  For example, if your outstanding mortgage balance was $150,000 and you short sale the house for $100,000 - you would be 1099'd for $50,000 which would be considered income to you.  HOWEVER - here are the IRS responses to questions involving the tax issue as it relates to the 2007 Homeowner Relief Act:

(Directly from the IRS website Regarding the 2007 Mortgage Forgiveness Debt Relief Act)

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 that mean?
Usually, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. The Mortgage Forgiveness Debt Relief Act of 2007 allows you to exclude certain cancelled debt on your principal residence from income.

Does the Mortgage Forgiveness Debt Relief Act of 2007 apply to all forgiven or cancelled debts?
No, the Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes.

What about refinanced homes?
Debt used to refinance your home qualifies for this exclusion, but only up to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified.

Does this provision apply for the 2007 tax year only?
It applies to qualified debt forgiven in 2007, 2008 or 2009.

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 the Form 982 must be attached to your tax return.

Do I have to complete the entire Form 982?
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?
You can 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 was forgiven?
Your lender should send a Form 1099-C, Cancellation of Debt, by January 31, 2008. The amount of debt forgiven or cancelled 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.

Can I exclude debt forgiven on my second home, credit card or car loans?
Not under this provision. Only cancelled debt used to buy, build or improve your principal residence or refinance debt incurred for those purposes qualifies for this exclusion.

If part of the forgiven debt doesn't qualify for exclusion from income under this provision, is it possible that it may qualify for exclusion under a different provision?
Yes. The forgiven debt may qualify under the "insolvency" exclusion. Normally, a taxpayer is not required to include forgiven debts in income to the extent that the taxpayer is insolvent. A taxpayer is insolvent when his or her total liabilities exceed his or her total assets. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982.

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, page 4.

19. I owe more than my home is worth. Am I eligible for short sale or is my only option foreclosure or bankruptcy?
We always suggest you consult with your lender and attorney as to what your options are. Options include: short sale, deed-in-lieu of foreclosure (basically an accelerated voluntary surrender), a loan modification, repayment, or forbearance plan, and foreclosure. The banks like to prevent foreclosure when at all possible. They've been known to lower people's rates and payments because of all the new defaults in '06 and '07 - this is where the loan modification can occur. Either way, your first stop should be to get information from you lender on what options they provide.  Keep in mind, most lenders will do as much as possible to try and get you to work things out and keep your loan current without selling via a short sale - regardless of the financial impact to the homeowner.   A popular tactic is to move your missing payments and fees to the back end of your loan, which you will still be required to pay...meanwhile, they will expect you to keep making payments.

20. Does a good credit score help the seller trying to do the short sale?
Only inasmuch as their credit score will stay high as long as they don't make any late payments leading up to the short sale. Some lenders may call the deficiency a judgment though, which will hurt the score a bit.   And while late or missing payments can affect your score while pursuing a short sale, it is nowhere as severe a hit as showing a foreclosure or bankruptcy.

21. How do short sales appear on my credit report?  Isn't it just as bad as a foreclosure?
No, a short sale is not as bad as foreclosure on your credit.  Short sales appear on your credit report as "pre-foreclosure in redemption", not as "debt discharged due to foreclosure". The impact to your credit score will be much less than the impact of a foreclosure. But more importantly, it will be much easier to erase by keeping your credit clean after the short sale.  While missing payments can seriously affect your credit score, we guide you on the most effective way to preserve as much of your credit as possible while going through the short sale.  For many folks, that could mean keeping your payments current - again depending on circumstances and whether you are financially able to do that.

22. Is a short sale still an option if a foreclosure has taken place?
By definition, no. However, if depends what you mean by "taken place" and whether you are the owner or the buyer. If you are the owner and you haven't been evicted yet, there is always a dollar amount called "cost-to-cure" that, if received by your lender, will cure your default. If you're a buyer, it's all the same to you. All you do is make an offer. And depending on your state, you can get the house back after you've been foreclosed on DEPENDING on your State's foreclosure law.  A short sale implies that you will not stay in the home after the bank approves the short sale and you close.  

26. I want to do a short sale and have a 2nd mortgage, does this make me ineligible?
No. Both of your lenders will need to be satisfied in some way to complete the short sale. If your first lender will be paid off by the sale, then you just negotiate the terms with the second lender.  Everything is based on the decision of your first mortgage holder...It is generally easier to get a second to agree to do the short, but the first makes the final determination for approval.

27. Does the mortgage company HAVE to 1099 us on our short sale? Is it a law? What is the difference in a 1099 and a 1099A?
The answer is no, the mortgage company does not HAVE to do anything when you have a short sale. It is very likely however, that they will NOT simply "charge off" or write off the loss of deficiency money.  Lenders can account for this in several different ways, one of the most popular of which being a 1099a. 1099 is a blanket term used to refer to non-tax-withheld income. A 1099A is likely what the lender will file as it pertains specifically to the acquisition or abandonment of secured property.  The Mortgage Forgiveness Debt Relief Act of 2007 allows taxpayers to exclude debt forgiven on their principal residence..so even if you are 1099'd or not, you can file a special IRS form with your taxes that will exempt you from paying taxes on the relieved amount in the short sale.