Ode to the Short Sale

Submitted by Heery Brothers, Realtors, Founding Partners

 The harder the conflict, the more glorious the triumph. What we obtain too cheap, we esteem too lightly; it is dearness only that gives everything its value. I love the man that can smile in trouble, that can gather strength from distress and grow”  ~ Thomas Paine

We find ourselves repeating daily that we are neither attorneys nor accountants.  This is usually part of conversation with somebody who has too much debt. Going late will hurt your credit, savings, etc.  However, many people are in or near default.  When people cannot sell their house for as much as they owe, the short sale often becomes the best way out.  Heery Brothers has completed multiple short sales for buyers and sellers.

A Short Sale is a Lender’s voluntary acceptance of less money than is owed to allow a property to be sold as an alternative to foreclosure. The proceeds to the Lender will be “short” of the amount necessary to pay off your obligation. If you follow a specific process this will show on your credit as satisfaction of the debt and everybody to whom you owe money on the house accepts this and should not pursue you for further debts.  It’s not taxable.

If you are having trouble paying your mortgage, call your lender. You may be surprised how a lender will work with you.  If you do not make progress, do not “walk-away” or “hand them the keys.”  This idea seems to have a strange allure to some people, but they often don’t understand that foreclosure or deed in lieu of foreclosure are both bad.  This could result in the long term destruction of credit, savings and purchasing power, as well as permanent damage to your reputation. The reckless use of foreclosure is very damaging to all parties.

Short sales work better for banks because:

• The return on investment to banks after they own property is lousy. Short sales provide for more effective loss mitigation.

• Banks can write-off (think deduct) the difference between the loan amount and final purchase price and even recoup some or all of the loss they take from government funds.

• The Banks can “1099” borrowers for the amount they write-off. Congress provided the framework for this last year, and (as mentioned above) it is not taxable by the borrower.

Short sales work better for borrowers mostly because there is no foreclosure.  The bank accepts a short sale in many cases as satisfaction in full, and there is no foreclosure on your record.  Again, we are not accountants and everybody’s situation is unique. You do receive a 1099 for the bank’s loss, but in most cases you are not responsible for the gain because of recent changes in tax law. The neighbors don’t ever see you having your stuff put on the street  and there is no giant foreclosure sign in the front yard.

Short sale listings often represent the best buying opportunities.  Buying a home “as-is” in foreclosure can be ripe with risk.  More importantly, there is often a reason a property has not sold with normal marketing. Maybe it will be hard to sell again in the future.  Ultimately, many buyers are disappointed by the quality of the properties that banks own, and short sales are often completed on properties with better marketability. In a short sale you get normal clear title, can make a normal inspection of the property and request repairs, and can close your loan in a cost effective time frame. Most of all this is where we see buyers getting the best deals.