5 Secrets to Surviving a Short Sale
July 13, 2011
Thanks to Neal for this guest post on things he learned about surviving a short sale. A generation ago a “short sale” was a special on Capri pants at and the local department store. A decade ago a “short sale” was a stock transaction that bet on failure.And now, it’s something completely different, and depressingly omnipresent.
A short sale is a way for you to get out from under your upsidedown mortgage and lessen the blow of foreclosure. At least, it offers a way to have to admit that you were foreclosed upon. We all know what the term “short sale” means these days. Many folks know less about what it involves, and more alarmingly, what it feels like to be on the receiving end of that short stick.
5 Secrets to Survive a Short Sale
Here are five little nuances that, if you’re just now considering this, you may not yet have been told, all of them something you need to weigh.
1. In comparing a short sale to a foreclosure, you’re basically trading one pain for another. Because in either case the bank won’t like you, and in return will send the credit bureaus a smear campaign with your name on it. Foreclosure will mercilessly ruin your credit for seven years. A short sale, if you can pull it off, will put a black mark next to your name for two, and give you quicker access to credit-rebuilding programs, which are suddenly all the rage.
But don’t sign up yet. Because your credit score isn’t the only variable involved.
2. Foreclosure is relatively easy. You just stop making mortgage payments, and then one day you get notified that you need to be out the door by a specific date. Which may or may not be the date you really need to be out of the house (some folks have been known to squat in their own home for up to year after a foreclosure notice).
When the real date arrives, you just pack your stuff and go. Simple.
3. By comparison, a short sale is like taking out your own appendix versus going to the emergency room. Nothing easy about it, and orders of magnitude more painful. First, you have to stop making your payments completely or the bank won’t even talk to you about a short sale. Don’t even thing about making a partial payment because, after all, you’re one of the good guys, it’ll back-fire on you.
What they will do, however, is turn your account over to a collection agency who will call you with some of the nastiest, most confrontational rants you’ve ever heard. Best advice here, if you truly are heading toward a short sale: don’t answer the phone. Instead, call your bank (not the collection agency) yourself every six weeks or so and tell them – yes, tell them – that you’ve chosen to do a short sale on the house, and you’re ready when they are, and in the meantime, no further payments are forthcoming.)
It gets worse from there. Once the short sale fuse has been lit, the bank will have a market appraisal done on your house, and your ego won’t like the number. They’ll want the highest price they can get, which is contrary to your desire to sell the house as quickly as possible. And by the way, at this point you are completely out of the conversation, on any and all issues. Just sit back and let your real estate agent handle the chaos.
Which brings us to the next little secret.
4. You absolutely need to work with an experienced short sale real estate professional. Ask for references and credentials. Anybody with a business card with the words “real estate” on it will say they can do it, but only a fraction actually specialize in it. Why do you need a specialists? Because the runaround you’re in for is astounding, and you need someone who can cut through the crap the bank will throw down in this process.
An attorney is a good idea, too, but that’s no secret.
5. There’s no such thing as a free lunch or a completely scott-free mortgage forgiveness, according to the I.R.S. You will receive a Form 1099-S in an amount equal to the amount of the loan forgiveness that results from a completed short sale. There are ways around actually claiming this income on your tax return, including the possible extension of Obama-generated tax breaks based on certain factors that you, your CPA and your attorney need to kick around.
But exempting this “income” from taxes is not remotely a sure thing, making this the dirty little secret of short selling.
6. There’s help out there. Go online and search for “short sale advice,” as well as “government programs for foreclosure avoidance.” The programs have income thresholds and expiring timelines, and this landscape is shifting constantly.
The banks, for example, have an incentive to help you apply for a kickback of up to $3000 — because they get a kickback of their own from taxpayers, which means you should thank all your neighbors for the help if you go this route – as part of the matrix-like cluster-bomb of paperwork and closing costs you’ll encounter.
Remember, while you may feel alone with your problems, you’re not.
Short sales are at an all-time high, and banks are resigning themselves to it as an alternative to foreclosure, which is the epitome of a pain-in-the-asset where they are concerned.
Just remember, though, that the short sale buyer is a close DNA match with the common shark, and they’re on your porch smelling blood for the sole purpose of capitalizing on your misfortune. Thus, coffee and cookies during showing are not expected… save the five bucks and buy yourself a sandwich. Just don’t tell your bank that’s how you’re spending your money, because they’re looking for any reason at all to tell you no.
All posts by Ben Edwards