Here are a few common short sale questions I receive and my answers.
Q. Can I do a short sale even if I am current on my payments and can afford the payments?
A. The quick answer is yes. In the industry this is called a ‘strategic short sale’ but it will require a letter of explanation detailing why you must sell the home. You do not need to be late on your mortgage to do a short sale. In fact, there is an advantage now in remaining current on your payments. As of June 1, 2012, the 3 major credit reporting agencies have announced they will change the impact of short sales on a borrower’s credit (assuming they missed no payments and weren’t late) to a neutral’ . Meaning little to no negative credit ramifications.
There some lenders starting to advertise that you can obtain a mortgage following a short sale. They say if you didn’t miss any payments prior to the short sale it is possible to get another mortgage immediately. We have not seen this happen yet. The current rule of thumb for most lenders when borrowers miss payments prior to a short sale is 24 to 36 months before they can qualify for a new mortgage.
Q. Will lender help pay my relocation expenses if I do a short sale?
A. Many lenders will pay you to do a short sale. Most recently Bank of America announced a new short sale program that pays qualifying owners up to $30,000 to do a short sale. Chase had a similar program for borrowers who had their loans originated by Washington Mutual. In addition the Home Affordable Foreclosure Alternative program will provide and incentive payment of $3,000 if you qualify.
Q. Will I have to pay back the part of the loan not covered by the short sale?
A. In California, if the lender accepts the proceeds of the short sale, they cannot seek a deficiency judgment or attempt to collect any additional payments. The CA law also states they can’t ask for a seller contribution or require the borrower to sign a note.
Q. Is there anything else I should know about doing a short sale?
A. There is a tax law that expires at the end of this year that allows most owners to not pay any taxes on the forgiven debt. Prior to this temporary tax law change the forgiven debt was treated as regular income. If you are considering a short sate, talk to a tax professional to make sure you qualify for the exemption and if not what the tax ramifications will be.
We specialize serving the needs of buyers and sellers of homes in the Roseville and Sacramento area including Sacramento, Placer, El Dorado, Sutter and Yuba counties.