Auburn Maine Real Estate- Auburn ME Homes For Sale - Property Listings

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The Dot Fernald Team - a Group of Dedicated Realtors® Selling Real Estate in Central Maine

Recently, I have been asked several times what the heck is a short sale?

A short sale is when the lender agrees to accept a mortgage payoff and release the lien when the payoff does not cover the outstanding debt.

Why do lenders accept short sales? Lenders almost always lose money when they foreclose on a property. In many cases, they will lose less money through a short sale than they would by foreclosing on the home and selling it as a bank owned property.

However, there are rules…

The borrower must experience a genuine financial hardship. If this is the case, they must call the lender. Talk to customer service or the collection department and let them know what is happening. That way, knowledge of the hardship is communicated to the lender and becomes a part of their files. They should keep a communication log.

Eventually, the borrower will need to document the hardship and their inability to cope with it financially be fully disclosing all their assets. The lender will want to see bank statements, stocks, bonds, tax returns and pay stubs. They will want to review a financial statement. The lender will want to see everything that may document the hardship and that the borrower is not hiding assets or income.

The lender will not make a commitment based solely on the hardship. The borrower will also have to put the home on the market and sell it.

Once the property is under contract, they will have to supply additional documentation. When the property was listed, the real estate agent prepared a comparative market analysis. The lender will need a copy of the analysis, a copy of the hardship letter, a copy of the Purchase & Sale Agreement, the financial documentation, and a net sheet showing how much they will net (or lose) from the sale of the home.

The real estate agent can assist you in every step of the process. In order, for this to happened, the lender will need an authorization letter. That letter must include the borrower name, property address, loan number, and the name of the agent, date and signature. The lender will not be able to negotiate with the real estate agent without the signed authorization letter from the borrower.

All of the above information will be submitted to the lender for their approval and …..…you wait.

Normally the lender cannot solely make the decision to accept a short sale. If there is mortgage insurance, they get a say-so. The mortgage has an investor. The investor gets a say-so. It can be a lengthy process.

If the offer and financial information makes sense, the hardship is genuine, and no other real estate is owned, the borrower may get a “yes” decision. The chances go up markedly if an experienced real estate agent is negotiating with the lender on the borrower’s behalf.

If the lender does forgive part of the debt, the debt forgiveness is taxable income. The IRS will require that taxes are paid on the forgiveness as income. However, there are exceptions. If the short sale is on a principal residence and is the first lien only, it may not be considered as ordinary income up to $2,000,000. It is highly recommended that a tax professional is consulted to get expert advice on this situation.