The good news is that since late , the IRS has been willing to release a federal tax lien. The IRS is not forgiving the back taxes that homeowners owe; it is just no longer requiring that the lien be paid off before the property can be sold. A single mortgage lien is an easy problem to solve. Here are some things to keep in mind:. First, try to determine how much is owed on the house in relation to its approximate value. Pass on those in which the owner has a lot of equity in the home — the lender likely will prefer to foreclose and resell closer to the market price.
What is the property worth? Ask the seller or the agent what liens are on the property, and which lender is the primary lien holder. Confirm this information through a title search before closing the deal to make sure there are no undisclosed liens on the property.
This is critical. Since they already have a lot of your information in the short sale paperwork, they may be able to expedite the loan application process. Once an agreement is worked out, it is common the lender will require closing in as few as 20 days. This is too late to start shopping for a mortgage. Finding the decision-maker can be one of the biggest initial challenges. You will first need to have the homeowner complete and sign an authorization letter notarization is usually required , which gives the lender permission to discuss the mortgage situation with you.
Many lenders have an application specifically for a short sale request. The proposal generally consists of a package of materials including the application and authorization letter, plus:. Make sure the seller understands all of the terms of the deal. Next comes the closing and the property is yours. A typical disclosure statement would indicate whether a house is in a flood plain or had any unpermitted renovation.
However, bank-owned properties often sell as is, without disclosure, so buyers need to do extra research on the home. Even so, banks may be slow to respond. How We Make Money. Jeanne Lee. Written by. Jeanne Lee writes about mortgages, personal finance and enjoys finding ways for people to hack their finances. Share this page. Bankrate Logo Why you can trust Bankrate.
Bankrate Logo Editorial Integrity. Key Principles We value your trust. Bankrate Logo Insurance Disclosure. What is a short sale? Short sale definition A short sale is when a lender agrees to accept a mortgage payoff amount less than what is owed in order to facilitate a sale of the property by a financially distressed owner.
Read more From Jeanne. A real estate short sale is unlike a short sale in investing. An investing short sale is a transaction in which an investor sells borrowed securities in anticipation of a price decline and is required to return an equal number of shares at some point in the future.
Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take.
Any type of property sale that is denoted by a credit company as not paid as agreed is a ding on a credit score. This is because there are two parts to all mortgages. The first is the lien against the property that is used to secure the loan. It gives the lending institution the right to sell the property for repayment. This part of the mortgage is waived in a short sale.
The second part of the mortgage is the promise to repay. Lenders can still enforce this portion either through a new note or the collection of the deficiency. Whatever happens, lenders must approve the short sale, which means borrowers are sometimes at their whim.
Short sales and foreclosures are two financial options available to homeowners who are behind on their mortgage payments, who have a home that is underwater , or both. In both cases, the owner is forced to part with the home, but the timeline and consequences are different. A foreclosure is the act of the lender seizing the home after the borrower fails to make payments. Foreclosure is the last option for the lender.
Unlike a short sale, foreclosures are only initiated by lenders. The lender moves against the delinquent borrower to force the sale of a home, hoping to make good on its initial investment of the mortgage. Also, unlike most short sales, many foreclosures take place after the homeowner abandons the home. If the occupants are still in the home, they are evicted by the lender. Once the lender has access to the home, it orders an appraisal and proceeds with trying to sell it. Foreclosures do not normally take as long to complete as a short sale, because the lender wants to liquidate the asset quickly.
Foreclosed homes may also be auctioned off at a trustee sale, where buyers bid on homes in a public process. A homeowner who has gone through a short sale may, with certain restrictions, be eligible to purchase another home immediately. Depending on the circumstances, homeowners who experience foreclosure can expect to wait two to seven years to purchase another home. While a foreclosure essentially lets you walk away from your home—albeit with grave consequences for your financial future, such as having to declare bankruptcy and destroying your credit—completing a short sale is labor-intensive.
However, the payoff for the extra work involved in a short sale may be worth it. Less disruptive alternatives to a short sale include loan modification and utilizing private mortgage insurance. Before resigning yourself to a short sale, talk to your lender about the possibility of a revised payment plan or loan modification.
One of these options might allow you to stay in your home and get back on your feet. Another possible option for staying in your home arises if you have private mortgage insurance PMI. If the PMI company thinks you have a chance at recovering from your current financial situation, it may advance funds to your lender to bring your payments up to date.
The source of the financial trouble should be new, such as a health problem, the loss of a job, or a divorce, rather than something that was not disclosed when the homebuyer originally applied for the loan.
However, if you feel you were a victim of predatory lending practices, you may be able to talk the lender into a short sale even if you have not had any major financial catastrophes since purchasing the home. To put yourself in a more convincing position to complete a short sale, stop purchasing non-necessities. Be aware of other circumstances that may prevent the approval of a short sale. If the lender thinks it can get more money from foreclosing on your home than from allowing a short sale, it may not allow one.
If someone cosigned the mortgage, the lender may hold that person responsible for payment rather than doing a short sale. If you think your situation is ripe for a short sale, talk to a decision-maker at the bank about the possibility of engaging in this type of transaction.
At this point, you should consult an attorney, a tax professional, and a real estate agent. While these are high-priced professional services, if you make a mistake by trying to handle a complex short-sale transaction yourself, you may find yourself in even bigger financial trouble.
You may be able to pay for these service fees out of the sale proceeds from your home. Professionals accustomed to dealing with short-sale transactions will be able to give you guidance on how to pay them. When setting an asking price, make sure to factor the cost of selling the property into the total amount of money you need to get out of the situation.
Of course, you want to sell the home for as close to the value of your mortgage as possible, but in a down market, there is bound to be a shortfall. In some states, even after a short sale, the bank will expect you to pay back all or part of that shortfall. These may include bank statements , medical bills, pay stubs, a termination notice from your former job, or a divorce decree. It is up to you to come up with a proposal. Be aware that the lender ultimately must approve a short sale after receiving all the details because the lender is the recipient of the proceeds.
Your job is to find a buyer for your home. Along with the documentation of your distressed financial status, your proposal should include a hardship letter explaining the circumstances that are preventing you from making your mortgage payments.
You want to make it as convincing as possible and protect your interests while also appealing to the bank. Be careful about submitting your financial information to a lender because, if it does not approve the short sale, it may use your financial information to try to get money out of you in foreclosure proceedings. If you still have cash assets , you may be expected to use them to continue making mortgage payments or to make up some of the shortfalls between the sale price and the mortgage amount.
An attorney experienced in completing short sales can help you navigate the details. Because short sales can take longer than regular home sales due to the need for lender approval, they often fall through. The buyer may find another property while waiting for an answer from you. Be prepared for this possibility. If the short-sale transaction goes through, consult with the Internal Revenue Service IRS to see if you will have to pay taxes on the shortfall.
Also, be aware that a short sale can still affect your credit score in the sense that the months of mortgage payments you missed prior to the short sale can show up as delinquent payments on your credit report.
Your bank may be more likely to be generous in this regard if you brought up your hardship before you were significantly behind. For credit purposes, while this is somewhat damaging, it is certainly less damaging than a foreclosure.
Short sales can also provide excellent opportunities for buyers to get into houses at a reduced price. Here are a couple of tips to help you make smart decisions when considering the purchase of a short-sale property. Most short-sale properties are listed by real estate agents and on real estate websites. Or the lender may make a counteroffer, in which case you can refuse, accept, or counter back — which involves restarting the process from square one.
The original homeowner may have applied, unsuccessfully, for loan modification programs. To avoid losing the home through foreclosure, the owner successfully appealed to the lender for a short sale transaction. But in doing so, he or she lost control of the selling process and any ability to ever reclaim the down payment or any additional equity. Other times, the lender may pursue a deficiency judgment against the borrower through the courts in an effort to recover the shortfall.
A homeowner who asks for a short sale should try to get a waiver to prevent the lender from trying to recover the lost money in the future. After a foreclosure, though, FHA requires a three-year waiting period before buying another home. Conventional loans backed by Freddie Mac and Fannie Mae require a seven-year wait for borrowers with a foreclosure on their credit report. For now, the days of easy pickings from short sales are over.
Homes in pre-foreclosure and foreclosed bargains are getting harder to find, too. True, you can still find very profitable deals with a short sale. But you have to work harder and smarter to hunt them down. That step, at least, you can start right here. Verify your new rate Nov 12th, How Soon Can I Refinance?
How Often Can I Refinance? It Is Worth Refinancing For 0. Talk to a Lender: How to buy a short sale home. Pete Gerardo The Mortgage Reports contributor.
January 14, - 11 min read. How does a short sale work? The benefit of buying a short sale is that you could find a home at a reduced price. Check your mortgage options Nov 12th, In this article Skip to… What is a short sale? The short sale process How long does a short sale take? Obstacles during the short sale process Who should buy a short sale? Pros and cons of buying a short sale What is a short sale? The short sale process The short sale process is a lot like buying a home off the market.
This is a must. Without financing in place, a bank is likely to dismiss your offer out of hand. Start your mortgage pre-approval Nov 12th, Step 3: Make an offer Your third step to buying a short sale home is to make a competitive offer. A good offer package for a short sale will include: A purchase contract for you and the seller to sign An earnest money deposit.
A substantial deposit shows the listing agent and bank you are a serious buyer. Proof of funds can include copies of bank statements, as well as equity lines of credit and certified financial statements Launching the negotiations with a low-ball offer is not likely to work out in your favor.
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