The Short Sale and How A Real Estate Attorney &

The Short Sale and How A Real Estate Attorney & Broker Can Assist You

In recent years, homeowners have faced financial hurdles and economic hardships that have not been seen in years. Some of these include loss of employment, divorce, medical emergencies, and bankruptcy. The recent unemployment spike has led many homeowners to consider short sales as an option. When a homeowner is behind on their payments and they owe more than the home is worth, the short sale becomes a viable option for their financial future. Our office can help you understand the next steps and assist you with a short sale.

First, what is a short sale? The short sale is a financial option available when the homeowners becomes behind on their mortgage and are no longer able to make timely payments to their mortgage holder. Usually, this happens when the homeowner is more than 90 days delinquent. In many circumstances, there are a number of reasons why this can occur, but when it does, the short sale is a solution. The short sale process allows the bank, when it agrees to the sale, a way to accept less than the balance owed on the home mortgage without it going through the bankruptcy and foreclosure process. For instance, if the homeowner owes $300,000 on a $250,000 property, the bank will be motivated to accept a lower short sale amount versus losing more in foreclosure costs and lower auction prices. If a bank accepts $225,000 in this example, it can salvage a majority of their loan amount from the consumer.


What are the short sale qualifications? The short sale process is a paperwork intensive one and one you will want to have a real estate attorney assist you with to ensure all the paperwork is completed properly. To qualify for the short sale, you must be unable to refinance or get a loan modification, be facing a long-term hardship, be behind on your mortgage payments, owe more on your home than its worth, be unable to afford your home, and lastly haven't been able to sell your home at a price to cover your mortgage amount. If your home mortgage meets these qualifications, you will need to work with a real estate broker to set the sale price on your home.

Once you do this, you or your real estate attorney will contact your mortgage holder and arrange for the short sale process to proceed. The bank or mortgage holder will send you a short sale packet, which will require a hardship letter, a BPO (Brokers Price Opinion), and other paperwork including financial documentation, paystubs, and any other documents. The hardship letter will need to explain why you cannot afford your home anymore. The BPO will come from a bank-authorized appraiser and put a value on your home. The financial documents for the short sale will normally include current paystubs, tax returns, bank statements, and any other relevant information for the bank to agree to the short sale. Again, having a real estate attorney to help you will facilitate the process to ensure all the documents are completed properly. In addition, the bank will want a listing agreement on your home to confirm it is listed and you have a prospective buyer for the home. A real estate broker will help with finding a short sale buyer for you to sell your home to and quickly expedite the short sale process. Once the bank agrees to the short sale, they will contact the seller and all applicable parties to arrange for the sale of the home and the homeowner to exit the home.

What about the remaining balanced owed? The mortgage holder will forward to the short sale seller a cancellation of debt notice for the difference of the balance owed. For instance, if your mortgage was $500,000 and the short sale was $450,000, you will receive a cancellation of debt for $50,000. That amount may or may not be reportable income on your tax return. By having a real estate attorney helping you on the short sale, the attorney can help to ensure that this cancellation of debt is understood and how it affects your finances. In California, the Franchise Tax Board handles the limits on Mortgage Debt Forgiveness while under federal law; the IRS handles it via the Mortgage Forgiveness Debt Relief Act of 2007. The cancellation of debt may or may not be always taxable and falls under different exceptions. The real estate attorney will have expert knowledge and comprehension of these policies and will be able to assist you on these debts. Our office can ensure this is clearly understood and can explain the ramifications of this to you.

Is a short sale the answer? To most homeowners who are behind in their mortgage, more than 90 days delinquent, and owe more than the home is worth, the answer is yes. The mortgage holder(s) must qualify with their lender short sale qualifications but it can resolve your financial hardships when it comes to your home mortgage.

As a real estate attorney and real estate broker, Stephen B. Mashney would be able to assist you on both transactions, at no cost to you and help you through the process. Much of the paperwork can be overwhelming, but my office and I can guide you through every step of the way and ensure the short sale process is handled professionally.

Please call our office today if you think the short sale process is right for you.

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