There’s a lot of confusion surrounding short sales, so I thought I’d answer some of the questions I’ve received from clients, owners of Santa Cruz real estate and blog readers.
Q: What is a short sale?
A: A short sale is when a lender agrees to accept less than what is owed on a home. For example, you owe $300,000 on your home loan, but your lender will allow you to sell your home for $250,000.
Q: Who makes up the difference between the short sale price and the amount owed?
A: In the past, the owner of the Santa Cruz real estate would receive a 1099 income statement at tax time. The “forgiven amount” would then be counted as income subject to income tax. This left homeowners in debt to the federal government for the tax owed on that amount. Now, with the passing of the Mortgage Forgiveness Debt Relief Act and Debt Cancellation, the short fall on a primary residence is not counted as income. This eases the financial hardship of those who are already struggling.
Q: Does a short sale impact your credit the same way as a foreclosure?
A: No, the impact of a short sale is milder on your credit than a foreclosure. Short Sales usually reduce your score by about 80 to 250 points and only stay on your record for around 5 years. Compare that to foreclosures which reduce your score approximately 250 to 400 points and remains on your record for 10 years.
Q: How do I qualify for a short sale on my Santa Cruz real estate?
A: Contact your lender as soon as you know you are in financial trouble. Government programs, particularly the Home Affordable Foreclosure Alternatives (HAFA), are designed to make short sales more attractive to lenders by giving them incentives for allowing a short sale over a foreclosure. However, if you allow your loan to become delinquent (more than 60 days), lenders are less likely to grant a short sale.
Q: Can I sell my home as a FSBO and still qualify for a short sale?
A: No. Lenders rely on "broker opinion" as to what the home is worth at this time. You need to hire a real estate professional that has experience with short sales. Short sales take longer to close and properly handling the sale can make a difference in getting an offer accepted by your lender.
If you are facing the possibility of foreclosure, let me help you discover the options that are available to you. You can reach me at 831-662-6522 or by email Lauren@LaurenSpencer.com.
For more information, please visit my website at www.MySantaCruzRealEstate.com.