Is A Short Sale An Option For You?

Are your loans higher than the value of your home?

Have you received notice of a foreclosure?

Can you no longer afford the payments on your home?

If you answered "yes",  then here are your options:

1.  Hire An Agent To Sell Your Home. 

Find an agent experienced in SHORT SALES! THIS IS A FULL-TIME AGENT WITH CONSIDERABLE TIME IN THE BUSINESS WHO CAN SHOW YOU ALL THE RECENT SHORT SALES THEY HAVE CLOSED.  Remember, any agent can list short sales, but few are actually successful in selling them. Then try to sell your house, and convince the mortgage lender(s) to forego a full payoff.  The lender(s) will review the sales price to make sure it is adequate, and ask you to submit a full financial package with hardship letter to show you are unable to keep your commitment to make the payments as agreed.  Most buyers and buyer agents are not eager about getting involved in a short sale because the lenders are often slow in making a decision - you can lose buyers along the way. Every borrower's situation is different so be sure and understand all your options first.  An experienced short sale agent and title company can guide you and the purchaser through the process of closing the sale.

2. Ask Your Lender For A Loan Modification

You may be eligible for a loan modification so call your lender and be honest in explaining your situation. Go for counseling at a federal or state endorsed agency. Do not pay any money to a "counseling modification specialist".  Most of the ads you find on the internet are scams! By talking with a state approved home counseling service, there may be relief available to you if you qualify and meet the new federal guidelines for assistance or modification of your loan.  Be prepared to document all income, debts and credit issues for further consideration.  If you have insufficient income to make continue mortgage payments, the chances are slim you can qualify to stay in your home. So call your lender and discuss your options.  It may be in your best interest to sell your home for a discounted payoff to the lender, move on,  and start over. Think carefully about your options.

3. Do Nothing. 

Many people are in denial about their default and they just ignore the mortgage company. If you quit making payments you WILL eventually receive a foreclosure on your property, probably in the next 5-12 months.  You'll get to live for free in the meantime, until the eviction process begins and, in exchange, you'll end up with a bad credit report for the next 7-10 years.  Mortgage lenders will give you a loan 2-4 years after a foreclosure, but only if you fully qualifiy and have a big cash down payment.  The foreclosure will remain on your credit report for up to 10 years and negatively impact your interest rate on all other loans. Don't deny the problem, seek a solution!  Consult with us for the best solution meeting your situation.  We will design a personalized plan of action to solve your problem!

What's The Impact on My Credit If I Do A Short Sale? 

From the research we've done, the negative impact on your credit score from a short sale will be similar to that of a foreclosure - at least you'd want to be prepared for the worst, and if it turned out a little better, then you're lucky.  There may come a day when lenders ease up on those with a foreclosure or short sale in their past, but so far the length of time is 2-4 years before you're eligble for a new mortgage with a decent interest rate.

Regarding the taxation of debt relief - here is a summary of the bill passed by Congress:

"Mortgage Forgiveness Debt Relief Act of 2007 - Amends the Internal Revenue Code to exclude from gross income amounts attributable to a discharge, prior to January 1, 2012, of indebtedness incurred to acquire a principal residence. Limits to $2 million the excludable amount of such indebtedness. Reduces the basis of a principal residence by the amount of discharged indebtedness excluded from gross income."

The last line means that the $500,000, two-out-of-five-years occupancy tax break is still in effect, but the debt relief lowers the tax basis.

What happens when the bank loses money - can they come after you for the difference?  Yes, they can - they can file for a deficiency judgment if the loan was a refinance or on an investment property.  Be sure to consult an attorney or comptetent tax advisor for more information and advice if that's your situation. 

So far we haven't heard of any banks filing for deficiency judgments, but it could happen years after the fact. Maryland, Virginia and the District of Columbia have different judical systems and proceedings so check with reputable legal counsel for guidance.

In summary, if you want and need to get out of this house, and can't pay down the loan enough to be able to sell it and break-even, you should think about doing a short sale.

Short-sell it and your credit won't be as badly affected as it will with a foreclosure. This allows you to  ride along without paying rent but you this does make a negative hit on your credit rating - which can be up to 200 points on your FICO score. 

We have heard those with perfect credit otherwise can get their FICO score up substantially in the following 12-18 months, but underwriting guidelines which are subject to change may prevent you from getting a new mortgage for up to three years. 

Hope this helps - Call me to discuss your situation.  We will evaluate your property to see if a short sale would be your best option.  You can reach us directly on (443) 333-9147.

*Always rely on the advice available from a tax expert,  local attorney or certified public accountant. We recommend you consult with at least one of these professionals before calling us to list your home for sale.