iOn REAL ESTATE | by Michael Humphries | Compass Roads Realty, Inc
It’s likely you’ve heard the term “short sale” thrown around quite a bit. So what exactly is a short sale?
A short sale is when a bank agrees to accept less than the total amount owed on a mortgage to avoid having to foreclose on the property.
on the other hand:
A foreclosure is a specific legal process in which a lender attempts to recover the balance of a loan from a borrower who has stop making payments to the lender by forcing the sale of the asset used as the collateral for the loan.
Whether you should do a short sale or let the home go to foreclosure depends on several factors. While for some homeowners, it is easier to throw up hands and let the bank take the home, that might not be the wisest thing to do.
Short Sale vs. Foreclosure
Deficiency Judgments After a Short Sale
Judgments are often negotiated between the seller and the short sale bank. In many cases, there is no deficiency judgment. An experienced agent can help you negotiate any deficient balances successfully.
Deficiency Judgments After a Foreclosure
Banks are generally unwilling to negotiate deficiency judgments with the homeowner after a foreclosure. Florida law makes it quite simple for the creditor to obtain the deficiency judgment, and allows up to FIVE YEARS after the foreclosure judgment to do so.
What is a Deficiency Judgment?
A deficiency judgment is a full-fledged judgment for the total balance of the mortgage debt, including all collection costs, legal fees, advances for taxes, insurance, etc., less the claimed value of the property foreclosed on AT THE TIME OF THE FORECLOSURE.
Buying Again After a Short Sale
If your payments are in arrears yet a short sale is granted by your lender, you may qualify to buy another home with a Fannie-Mae backed mortgage within 2 years. The wait for FHA is 3 years.
Buying Again After a Foreclosure
With certain restrictions, you may be eligible to buy another home in 5 years if the home was your primary residence. Without restrictions, the wait is 7 years.
What Should You Do?
The decision either way is a personal one. More and more people in this situation are opting to do a short sale. The horror stories regarding short sales, are for much, a thing of the past. This type of sale is now commonplace and many realtors have become experts getting them to the closing table.
One of the biggest misconceptions is costs. Most sellers struggling to make their mortgage payment don't have the money to pay the seller expenses associated with a traditional sale. The GOOD NEWS is there are no costs to the seller doing a short sale. In most cases the short sale bank pays for all of the seller's cost—including the real estate commission, title expenses and any property tax or home owner association dues in arrears.
Find yourself a good realtor that specializes in short sales to help guide you through the process.
Michael Humphries, designated broker for Compass Roads Realty, Inc. and writer for iOn real estate covers local and national real estate news, industry trends and market analytics. Read more of his work here.
Search for thousands of homes in South Florida with direct access to the MLS.
Comments
Thanks Michael, could you comment on Deed in Lieu sometime?
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through a short sale, mortgage restructuring as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. The Mortgage Forgiveness Debt Relief Act expired Dec 31, 2013 and has not been extended at this time.
Though there has been no formal announcement, the Senate Finance Committee expects to take up a so-called "extenders" package sometime this year.
This law that has saved large numbers of homeowners from hefty tax bills. Hopefully the committee will act accordingly and not only extend the Act but make it retroactive.
Hi Patti - That was the case for years, and during the "housing crisis" our brilliant people in Congress waived the 1099 for a few years. But I do think the waiver expired and was not renewed.
that is always a possibility and SS sellers need always be advised of this
I read somewhere that as of 1/1/2015 the seller will be 1099'd for the difference from what is owed and the actual sale price. Anyone else heard that??