When homeowners are facing foreclosure, they often consider putting their home up for a short sale. During a short sale, the home is sold for less than what the original homeowner still owes on the mortgage. The proceeds from the sale go towards paying off the home.
If you find yourself in this situation, you’ll likely tell some friends and family members. They will in turn, also likely provide guidance on short sales, even if they don’t really understand them or have never been through one. This leads to many people believing myths that just aren’t true. The most common of these, and the truths behind them are below.
Lenders Are Reluctant to Agree to a Short Sale
Many people don’t even consider asking their lender about a short sale. They figure the lender won’t agree to it because they will need to accept less money than what’s owed on the mortgage. However, lenders agree to short sales more often than people think. Without a short sale, it could take a very long time for them to receive the money back for the mortgage if they ever do.
Additionally, a short sale provides a new buyer for the home. Banks don’t really want to take possession of a home because they don’t want to go to the trouble of selling it. When you sell a home in a short sale, your realtor does that work for them.
You Can’t Buy a Home for Years After a Short Sale
After a short sale, it’s likely going to be a little while before you can own a home. That time, however, is not the 10 or 20 years that many people think it is. In fact, you can qualify for a Federal Housing Administration (FHA) loan in as few as three years after a short sale. Conventional lenders will also require that you wait a minimum of four years after a short sale before applying for another mortgage.
You Must Pay Taxes on Forgiven Debt
After a short sale, there is not enough money to entirely cover the amount still owed on the mortgage. The lender forgives this debt, which is why you need their approval to sell the home in a short sale. The IRS considers forgiven debt taxable income and so, you will have to pay taxes on the forgiven debt. However, there are exceptions and exemptions, which a foreclosure defense lawyer can review with you.
Short Sales Will Ruin Your Credit
A short sale typically indicates that you experienced financial hardship to such a degree that you could not pay your mortgage. As such, short sales do affect your credit. However, a short sale does not entirely decimate your credit score the way many people think that it does.
The extent to which your credit score is affected after a short sale varies depending on a number of factors. If you had never missed a mortgage payment, car payment, or credit card payment before the short sale, your credit score likely won’t suffer as much as it would if you had been significantly behind in your payments.
Another main factor that will determine how a short sale affects your credit score is how your lender reports the short sale to the credit reporting bureau. They can report the debt as either paid in full or settled for less than the full balance. If they report the debt as paid in full, it will be similar to as if you paid off the debt. As such, your credit score won’t be impacted as greatly. If the lender reports the debt as settled for less than the full balance, it will have a greater impact on your credit score.
Understanding this difference is one reason it’s so important to understand your lender’s terms before closing the mortgage loan.
You Can Only Short Sale a Home if You’re Late on Payments
It’s true that short sales are often associated with foreclosures. This is because it’s an option that those in foreclosure often use. It’s also true that lenders typically only agree to a short sale when homeowners are facing foreclosure. This is due to the fact that foreclosures show a real financial hardship on the part of the homeowner. However, if you can show another hardship, such as losing your job and needing to relocate for a new one, a lender may still agree to a short sale.
You Don’t Need a Lawyer for a Short Sale
After hearing that a realtor will help them through a short sale, many homeowners assume that they don’t also need an attorney. However, that’s not true. A realtor is not going to negotiate with the lender to get you a better deal, and a realtor is not allowed to give you legal advice. Even if a real estate agent knows the answer to a legal question you have, they are prohibited from telling you, unless they are licensed to practice law in the state of Florida.
An attorney will also represent you while negotiating the best deal for the short sale. This means they can help get even more of your debt forgiven. They can also defend you against a deficiency judgment in the future, which will allow the lender to garnish your wages or otherwise collect the amount still owed on the mortgage.
Have Questions About a Short Sale? Contact a Florida Foreclosure Defense Attorney
Foreclosures, short sales, and loan modifications are all very complex. Homeowners should not try to go through the process alone. A Fort Lauderdale foreclosure defense attorney can help you through it and advise you on all your legal options.
If you’re behind on mortgage payments and are worried about what’s going to happen next, contact Loan Lawyers at (954) 523-HELP (4357) today. We will review your case and determine what your best option is. Call today or fill out our online form for your free consultation.
Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 2,000 homes from foreclosure, eliminated more than $100,000,000 in mortgage principal and consumer debt, and have recovered over $10,000,000 on behalf of our clients due to bank, loan servicer, and debt collector violations. Contact us for a free consultation to see how we may be able to help you.