Short Sale Tip of The Week 7-8-09

Posted on 07. Jul, 2009 by ctlms in Short Sale, foreclosure

Common Short Sale Myths and Misconceptions.

This week we will delve into some of the common myths and misconceptions about short sales, properties facing foreclosure, and bankruptcy.

My client has a foreclosure filed against them so there is not enough time to sell the property.

The process in CT usually takes a minimum of 90 days and often well over 6 months, so there is usually plenty of time to help your client.

My commission will be cut and it's not worth the hassle.

It is true that there is always a possibility that the lender will require a reduction in the commission.  Some lenders such as Ocwen always try to reduce the commission.  However loans owned by Fannie Mae cannot be reduced below 6%.  But in a market like we have today, isn't some commission better than none.  And with a professional doing the negotiations there is a better chance of retaining the full commission and limiting the hassle involved for all parties involved.

The seller is just better off doing a deed in lieu or bankruptcy.

A short sale has less of an effect on the sellers credit than any other option including deed in lieu, foreclosure and bankruptcy.  If the seller wants to buy a home at any time in the next 7 years, a short sale is a better option.

The bank will still come after the seller for the deficiency.

If the property gets foreclosed on the bank will almost definitely come after the sellers for the difference and they will already have the authority to attach wages and bank accounts.  In a short sale we have the ability to negotiate the deficiency, hopefully completely eliminated.  Also if the contract has the proper contingency the seller will always have the last say after the negotiations are complete.  If the seller doesn't think the outcome is their best option, they can back out.  However most times a negotiated short IS the best option.

Short sales are to complicated and take to long and aren't worth your time.

If your client knew that was your attitude, do you think they would recommend you to others?  However if you did whatever you could to help them, or at least referred them to agent that was willing to help them, don't you think they would speak highly of you to others?

My client can just declare bankruptcy to keep their home.

It is true that bankruptcy is a option and can help some homeowners keep their homes.  However if the seller cannot afford their house payment then bankruptcy will most likely just delay the inevitable.  Either way that is a decision for the sellers with proper legal advice.

The seller will owe taxes on the forgiven debt.

There are a few exemptions that the seller may qualify for.  HR 3648 provides an exemption if the debt forgiven was purchase money and on a primary residence.  Also an exemption that has always been in the IRS code is the insolvency rule.  Put simply, if the sellers debts exceed their assets, the IRS considers them insolvent and they may be able to exempt the forgiven debt from their taxable income.  Obviously the sellers will need to consult a CPA for tax advice specific to their situation.

These are some of the most common myths and misconceptions regarding short sales.

That's a rap for this week.  See you all here next week for my next Short Sale Tip of The Week.

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