Real Estate | A short sale might be right for you

Whether the sale of a home is forced due to financial difficulty, work related, or necessary for some other reason, a short sale could provide the best solution if the home is worth less than what is owed on it.

A “short sale” is defined as the sale of a home where the net proceeds from the sale do not cover the total mortgage obligation and closing costs. The homeowner’s inability to make up the difference between the sale proceeds and what is owed is the final factor in defining the components involved in a short sale.

Short sales are different from foreclosures, in which the forfeiture of the title to the home to the lender results in a sale of the property by the lender. A California bankruptcy attorney can help you.

» There are several steps in the process of a short which should be followed to get the best results as quickly as possible:

Hire an experienced attorney
The first step to a successful short sale is to hire a qualified real estate attorney who specialize in short sales. Despite the proliferation of short sales, there are still very few attorneys with extensive knowledge in the field. Be sure to work with an attorney that has hands-on experience with short sales.

Complete the short sale package
The lender will provide the assigned attorney a list of documents required to initiate the short sale process. The short-sale package includes:

• A hardship letter detailing the circumstances which have necessitated the short sale
• A copy of the purchase contract
• Verification of income and assets
• Tax returns
• Bank statements

After review of the package, the lender can approve the short sale, make a counter-offer, or deny the short sale. The last two responses can either lengthen or derail the process. One of the benefits of working with an attorney becomes apparent during this phase of the short sale process. An experienced attorney can speed the process, respond to counter offers, and develop new strategies if the short sale is challenged by the lender.

» Once the short sale is completed, there may be other issues that require attention…

The homeowner may be requested to sign a promissory note agreeing to pay back the amount of the loan not covered by the short sale. An attorney can provide responses and options for this, especially if the financial hardship is permanent.

Under normal conditions, any amount of a mortgage which is forgiven by the lender is considered as income, and taxes are levied on that amount. Under a temporary measure passed in 2007 called the Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act, homeowners can exclude debt forgiveness on their federal tax returns from income for loans discharged in calendar years 2007 through 2012. Be sure to consult your real estate attorney and your accountant to see whether you qualify.

Debt forgiven through a short may have an adverse effect on your credit score. However, the impact of a short sale will be much less than either a foreclosure or a bankruptcy.

Navigating a short sale is a difficult process, an experienced and knowledgeable attorney who understands debt relief, bankruptcy and tax implications can help you. For an confidential consultation and assessment on your circumstances as they relate to a short sale or bankruptcy call the attorneys at Zhou & Chini at (888) 483-2902.