You are currently browsing the category archive for the ‘Realestateology’ category.

My company has listed or sold about 1,000 short sales in the last year just in the Washington, D.C. area. The biggest problem in dealing with these transactions is the lack of education and understanding on both the consumer’s and agent’s perspective.

For my agents, OF COURSE, they know exactly what a short sale is, what it isn’t and how to handle it! What’s most frustrating is how our colleagues WANT it to operate, versus the way it really should be according to the contract.

First – let’s start with just a couple facts of what Short Sales Are NOT –

  • The contract is NOT with the bank, but between the owner of the house and the buyer. Once they agree to terms, it is “ratified.”
  • Once the house is “ratified” (meaning, the buyer and seller have agreed on the terms of the contract), the house is NO longer AVAILABLE and should be registered as Under Contract, or Under Contract with contingency (depending on the practice in your area).
  • All other offers, while they should be presented to the SELLER, are supposed to be considered “back ups” to the primary offer.
  • A “back up” offer is not required to be brought to the bank for 3rd party approval when the contract is ALREADY ratified.

And now here’s what a short sale IS:

  • The owner owes more than what the house is worth AND cannot pay the deficit between those values AND the bank is willing to take less in payment than the mortgage amount.
  • While it may not be as bad as a foreclosure, it is a negative hit to your credit.
  • For a limited amount of time, those who go through a short sale MAY have some tax relief.

The Internal Revenue Service web site states:

“If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.”

“The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

“This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.” See more information from Publication 4681.

If you’re thinking of short selling because your home has lost so much value – you have a limited amount of time to do so without carrying a heavy financial toll.

But understand that not all agents are created equal and the minority actually know what they are doing. While some associates are selling the majority of their short sales, the industry average in the mid-atlantic area is less than 50% actually making it to settlement.

Until next time…




%d bloggers like this: