The following are a few quick facts regarding Short Sales. Most agents have concluded that learning and working short sales is important to running a successful real estate business. This is not comprehensive, rather a guide.

What type of property is qualified for a short sale?

Banks consider short sales for a variety of reasons
-Any home, any size, any style or condition can be considered for a short sale

Normal steps to start the short sale process
-The homeowner must be in distress
-The short sale option must be discussed, disclosed, signed by, and agreed by the homeowner.
-The homeowner must sign an authorization release form with the real estate agent
-The homeowner also must sign a sales contract

Contact the loss mitigation department (bank or lender of loan(s))
-Fax an offer to the bank
-Include a cover letter with the offer explaining why the offer is less than full price.
-A closing statement on how much the bank will net after all fees have been paid
-The homeowners hardship letter
-An estimate on the cost of repairs for the home

What happens to the seller’s credit?
-Try to get the bank to accept the full payment without pursuit of any deficiency judgment.
-Homeowners should speak to their accountant for advice

Are there other options?
-Many lenders are willing to offer loan modification programs after Fannie Mae and Freddie Mac have introduced additional programs. The options include, extending the loan life, adding delinquent payments to the principal and/or reducing the interest rate.
-The ideal candidate for short sales is still making loan payments and has a good credit rating.
-It may be possible to refinance an adjustable (ARM) rate loan with the Federal Housing Authority (FHA).

What are the seller’s options if the bank or lender rejects the short sale?
There are a number of reasons a bank will reject a short sale. Look for another buyer.
-A short sale may be rejected if the loan is less than a year old. The loan servicer may require that the loan is bought back by the original lender.

Are there tax liability with short sales?
-Check with a tax expert. The IRS requires the lender to submit a Form 1099 stating the forgiven amount. Sellers who meet the IRS definition of insolvency (bankruptcy or debts exceeding assets), may not have to pay taxes on forgiven amounts.
The U.S. House of Representatives introduced the Mortgage Cancellation Tax Relief Act which eliminated taxes on forgiven debt on principal residence through either short sale or foreclosure.

Obviously short sales are more difficult than your average buy/sell, but if agents want to maintain or grow a successful business, learning how to work a short sale is vital. It's not going away anytime soon. We still have another huge hurtle when the adjustable rate mortgages flex their muscle in the coming years. Here's to your success.