Collier Blog

 Short Sale and is it for you?

Questions many are asking these days and rightfully so. Many homeowners are upside down; many have lost jobs or are making less income than before. Lost of vacant and foreclosure properties littering neighborhoods bringing prices down even more. The media reports almost daily how horrible our housing situation is right? Yes they do from the local papers to The New York Times recent article Foreclosure Filings Jump, and Fall Is Forecast as Peak or the wall street journal’s Home-Price Gains Erased they just about all say the sky is falling or at least home prices.

So you own a home or in some cases we see several and you cannot afford to continue paying the mortgage or mortgages. Should I short sale or just let it foreclose?

Let’s look at options and what the legal experts say shall we?

Option 1 = Foreclosure

Florida Foreclosure can be read at Chapter 702
FORECLOSURE OF MORTGAGES, AGREEMENTS FOR DEEDS, AND STATUTORY LIENS

Now we have been told by attorneys and so have many of our clients, if the bank forecloses the bank can obtain what is called a deficiency judgment. A deficiency judgment states you still owe the deficiency amount on the sale of the property. Let’s say you owed $300,000. on the loan and your property was sold at a court sale for $150,000. guess what?  You still owe the bank the difference or “deficiency” amount plus any reasonable attorney’s fees/court cost to recover such amount from you. This will also appear on your credit report along with the foreclosure. The lender may be allowed to take further legal action such as garnishing wages to pursue payment based on the laws of your state.

It is up to the bank whether they go after you or not!

In my humble opinion if you are a candidate you should speak with an attorney about filing bankruptcy if you really want to consider foreclosure. IF NOT? The Next Option may be best for you!

Option 2 = Short Sale

What is a Short Sale?

Very Simple, A short sale is the sale of a property for less than what is owed on it. The lenders voluntarily accept less than full payment and forgive the unpaid balance. This happens when a property is worth less than what is owed, the owner is insolvent, and can’t make up the difference. In the sale of the property, a lender is paid off with a dollar value short of what it is owed, thus the term short sale.

Now saying the lender forgives the unpaid balance, the lender agrees NOT to pursue the deficient amount. However some lenders may if the home is NOT your primary residence issue a 1099 in the deficient amount or they may not. Recent changes in law, such as the Mortgage Debt Relief Act of 2007, have reduced homeowners’ tax liability.

In a short sale of your primary residence, the Mortgage Debt Relief Act did away with much of the tax consequences. For residences other than your primary, in both a short sale and a foreclosure you could be taxed for the difference in what you owe and what the bank receives as payment. This means the IRS could consider the difference as income, and you could be taxed on that income. You must decide if it is an acceptable risk and that is best decided by speaking with your tax professional, we suggest a tax attorney.

In addition you most often pay nothing out of pocket with a short sale, all real estate commission, taxes, liens; etc came off the banks net!

I hope you can see why I say if you are considering foreclosure in my opinion it is best to speak to an attorney about possible bankruptcy, be advised it is not as easy to file bankruptcy as it was years ago and you may not qualify. If you do not qualify then the short sale may be the best option for you as it is for most.

Short sales can help save your credit as we ask for the bank to report the lien as “settled” as with anything you can ask a credit reporting agency what that will do to your credit. It may drop the score some but it can be easier than a foreclosure to repair and much faster. A bankruptcy can be on your credit for 10 years!

If you are interested in help with a Short Sale contact us or is you want  attorney referrals just complete the form below or e-mail us at info@Collier-Associates.com

** Please Remember I am NOT and Attorney and this is Not legal advice, simply looking at research and what I have been told. Anyone facing foreclosure should get advice from an Attorney to be sure about the law and process. We will be happy to give you some names of Attorneys we have worked with at anytime FREE of charge.

Cary Collier is a Active Florida Real Estate Broker www.Collier-Associates.com

Tuesday, June 24, 2008 12:27:38 PM