Short Sale Information for Pawleys Island, Murrells Inlet, Myrtle Beach SC Real Estate Sellers
If you are a seller considering to sell your property as a short sale, please read the content below. There are consequences and information you should be aware of before proceeding with this process.
Options for Sellers involving Short Sales
Once the determination is made that the seller owes more than the property is now worth, it is important that you seek separate legal, credit, and tax advice. The decisions you will be making all have legal, financial, tax and credit implications. A short sale carries with it negative credit and possibly tax consequences. Anything other than the full payment of the mortgage note will have negative credit consequences.
You are encouraged to consult with a HUD-approved credit counseling agency prior to making any decisions. Carefully scrutinize the credentials of the credit agency for whom the credit counselor works with. Not every credit counselor or foreclosure rescue specialist is going to be HUD approved.
The following are your options in rough order of "least damage to credit" to "most damage to credit":
1) Keep the property: If you are unhappy that the loan balance is more than the property value, and you are under no pressure to sell, keeping the property may be the best solution. You may have some short term financial distress, but it doesn't have to result in the loss of the property.
1a) Is there a family member or other resources that can carry you through.
1b) Lack of equity may cause the disability of refinancing, but there may be a special "hardship refinance" program a particular lender may offer, just ask.
1c) If you have to move, could you rent the property (a negative cash flow is better than no cash flow) and sell it later in a better market?
2) Sell the property and bring cash to close: It is not appealing, but it can be a good choice for you if you are in a financial position to pay a deficiency from other liquid assets. This avoids the credit damage that even a successful short sale will cause. In some circumstances, an alternative would be to convert any deficiency into a personal note, or a note on another property owned by you. Please consult the appropriate legal and tax advice on any such note.
3) Attempt a "Workout" with the lender: In some cases the lenders have been willing to reduce or roll back interest rates or reduce the allowable payment so that the homeowner is able to keep their home. Generally speaking, it is not advisable for the agent to take the lead in representing a property owner in a workout. They are complex contract modifications, and relatively few homeowners in distress have been able to come to a permanent agreement with the lender. If this is the option you choose, consult an attorney. Please note that there may be greater opportunities for financially distressed homeowners, but the new laws, policies, & procedures emerging by Fannie Mae, Freddie Mac, VA, FHA, and private lenders make the workout option much more complex.
4) Offer the lender "Deed in Lieu of Foreclosure": Offering to trade the property to the lender in exchange for cancellation of the note makes sense if you owe more than the property is worth, unable to make payments, and are likely to lose the property in foreclosure in the near future. Like the workout option, this is a contract negotiation, and should be sought only after consulting with an attorney.
5) Offer the lender a short sale: On occasion, the lenders have approved short sales that included personal notes for the deficiency, and unbeknownst sellers have signed these notes without a full understanding of the consequences. Be aware that the lender is NOT a principal in this transaction. The agent represents the seller. The offer is negotiated with the seller just as in a traditional sale. The offer is then submitted to the lender, not for an acceptance, but for approval of the terms and net proceeds.
Elements of a successful Short Sale
Property is worth less than is owed
Seller has hardship(s) that makes it extremely impractical or impossible to keep the property
- Seller is cooperative and willing to work with a real estate broker to package the short sale
- Lender expresses willingness to entertain a short sale
- Property is listed with appropriate caveats and protections for the seller, properly priced, and effectively marketed.
- Lender is presented with an offer accepted by the seller, along with a completed short sale package and narrative explaining why the short sale is necessary and desirable
- Lender approved the offer and escrow closes as usual. No proceeds go to the seller.
- There may be tax consequences associated with these options. Please refer to the Mortgage Forgiveness Debt Relief Act of 2007 for more information, and please seek legal advice from a tax professional.
6) Allow the property to go to Foreclosure: This does the most damage to your credit, therefore usually the worst option. This option makes sense however, if you have no other resources with which to obtain housing, to simply stay in the property as long as possible.
If you would like to proceed with a short sale or need more information, please fill out the request below. Thank you in advance for the opportunity to assist you in your Real Estate Needs.