20 Feb 2013

What is a Short Sale?

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A short sale in real estate means that a real estate professional negotiates a ‘short’ or discount of an existing mortgage note for the purpose of a quick sale.  Despite the word ‘short‘ in its moniker  there is nothing quick about this type of transaction as it can take months to complete.  The good news is that there is very little required from the seller to make this strategy work.

Here are some basics to give you an understanding of what a short sale is and what is required:

When to use a short sale:  Typically, this strategy works best when the seller is behind on payments and owes more than the property is worth.  This strategy may also work if the property requires significant repair in order to get to market value.

Benefits of a short sale to seller:  Simply put, a short sale is the least worst option.  Foreclosures are the worst option and the ‘atomic bomb’ of credit score hits.  Short sales are better and will allow you to recover from your credit damage quicker (in some cases, you may be able to qualify for a mortgage in as little as 3 years).  Also, after the initial paperwork, there is very little that the seller is required to do for the short sale to occur.

What is required of the seller for a short sale:  Once you agree to have a short sale performed, you will have some paperwork to fill out.  You’ll also be required to provide the following information:

  • Last 2 years of taxes
  • 2 months of bank statements and pay stubs
  • Hardship letter explaining why you are able to pay your mortgage

After the paperwork is signed, the only reason you’d have to do anything is if an appraiser needs to see your house or if the banks need to see more recent pay stubs and bank statements.

Detriments of a short sale to a seller:  A short sale will affect your credit score.  In addition, in some states, just as with a foreclosure, a bank may sue the seller for deficiencies, or the difference between the short sale price and the amount owed.  Most good short sale professionals will be ale to negotiate this.

Finally, as is the case with a foreclosure, you will receive a 1099 from the bank.  This means that the unpaid deficiency in your mortgage will be considered ‘income’ since you didn’t pay the expense, and you’ll owe taxes.  However, as of 2013, the Debt Forgiveness Act is still in place and as long as you’re current on your taxes, a good real estate professional will show you how to apply for debt forgiveness.

What will an investor do for you:  Banks prefer working with real estate investors rather than real estate agents because investors can come up with cash for a quick sale.  Real estate agents have to negotiate and then try to find a buyer who qualifies for a loan.  This can take time.

Real estate investors are the end buyer and purchase with cash, so the sale can go quickly.  Banks like this.

The job of the real estate investor is to show the bank that you have a financial hardship, the property is in distress, and that they are the quickest and best solution to the problem.

Lion Pride Capital:  At Lion Pride Capital, we work with a network of real estate investors from all across the country as well as a local company who has participated in over 1,000 short sales in Central Texas alone.  We strive to provide win-win scenarios for all involved in the process.

If you are behind on payments, owe more than your property is worth and your house requires work to get to market value, Lion Pride Capital can help.  Contact us today at (512) 296-2299

About the Author

Robert Guild has been the financial expert and the controller for both public and private companies for decades. Robert is now the co-founder of Lion Pride Capital Partners. At Lion Pride Capital Partners, we’re a team of investors. If you wanted to describe us in a couple of words, it would be: Expertise, Experience, Funds, and Network. We have experienced cash buyers and a construction manager who has been building and remodeling homes for over 20 years. We have a Realtor/Investor who finds us properties and markets our finished properties for sale. We also have a top mortgage banker with an extensive real estate portfolio and has been investing in real estate for over 20 years. I also have real estate investment mentors who are the most successful investors in Central Texas. We also have access to investor friends around the country so that together we can provide pretty much any solution to any problem in real estate for about any seller in about any situation. Regardless of your situation, we can help! Contact us today.

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