10 Untrue Myths about Short sales

    Over the past couple of months through presenting at agents and consumer seminars I have been consistently asked some of the same questions as they pertain to short sales. Most of these are “myths” or misconceptions. For the greater good, I have put together the ten most untrue myths I have been asked about in the last couple of months, through emails and at seminars. Most information is questions asked by consumers, but is great information for agents as well.

    Some of this information has changed as a result of the changing landscape of the distressed market. As always if you need any more information contact me anytime.

    1. If you let your home go to foreclosure you are done with the situation and you can walk away with a clean slate.

    The reality is that this couldn’t be any farther from the truth. You could end up with an IRS tax liability and still owing the bank money. Let me explain. Please keep in mind that if your property does go into foreclosure you are liable for the difference of what is owed on the property versus what it sells for in almost every situation. (For example if you owe $200,000 on the property and it sells at auction for $150,000, you are liable for the $50,000 difference.

    Not only are you liable for the difference to the bank, but in most situations you will also be liable to the IRS! Hard to believe? Well, believe it or not, the IRS counts the difference on the sale as a “gain” on your taxes. That’s right-you lost money and it’s counted as a gain! (I didn’t make that rule, that’s just the way it is). Banks and the IRS can go as far as attaching your wages.

    Guess What? A short sale in almost every situation can alleviate any IRS liability and any bank liability. Under the new programs and through bank negotiations, these debts can be relieved and the IRS tax liability gets canceled out. Almost every program is for primary residences only.

    2. A short sale and foreclosure really damage your credit.(True for a Foreclosure/False for a short sale)

    A foreclosure can stay on your credit for 5-7 years, and can really deter your chances of owning a home in the future. A foreclosure can severely damage your credit. If you go through a foreclosure it is not to say that you cannot get a loan ever again, but it will be much more difficult. On the other hand a short sale can have limiting effects on your credit. A short sale can damage your credit, but is much less harmful than a foreclosure and can go on your credit report as charged off in full. I have had clients buy a house in as little as a year and a half after they went through a short sale. It is not looked at with the same scrutiny that a foreclosure is.

    3. There are no options to avoid foreclosure.(False)

    Now more than ever there are options to avoid foreclosure. Besides a short sale, loan modifications, along with deed in lieu are also options. In most cases (but not all) a short sale is the best option. Either way, there are more options today than there have ever been to avoid foreclosure.

    4. Banks do not want to participate in a short sale, or it is to hard qualify to be accepted for a short sale.(False)

    Banks would rather perform a short sale rather than a foreclosure any day. A foreclosure takes a long time and creates a huge expense for the banks; a short sale saves both time and money. Banks have more foreclosure inventory than ever before, and certainly do not want any more. Banks more than ever welcome short sales. Qualifying for a short sale is easier than you think, you need to have a true financial hardship, or a change in your finances and your house has to be worth less than what you owe on it. Not only do consumers, but banks also now have government incentive to participate in short sales as well.

    5. Short sales are not that common.(false)

    At this present time, over 33% of national sales are short sales. Due to the economy, and rising unemployment this is something that is affecting millions of Americans. Some of the sharpest and smartest minds in the country are short selling their properties; this is something that is not just limited to any particular income class. This has affected everyone from all facets of life. A short sale should be looked at as a helpful tool, not a negative stigma. That is why the government is offering programs that actually pay consumers to participate in short sales. It is not just affecting our community it is affect communities and consumers across the nation.

    6. The short sale process is too difficult and they often get denied.(False)

    Though the short sale process is time consuming; it is not as difficult as the media would have you believe. The problem is that most short sale’s that get denied is because of inexperienced agents or people involved the process. It is true that if the short sale process is not followed correctly is has a good chance of getting denied. An experienced agent knows how to avoid this. Short sales require a lot of experience, and with an experienced agent the process is simple on average closes about 95% of the time.

    7. Short sales cost money. (False)

    A short sale is completely free to the seller of a property. In fact as mentioned before you could get up to $6000.00 to participate in a short sale. In many ways, a short sale may put you in a better financial position than prior to the short sale. Almost every short sale program now has some type of financial incentive for the home owner, as long as it is a principle residence.

    8. If I am behind on my payments, I can perform a short sale any time.(False)

    The farther you get behind on your payments, the harder it is to get a short sale approved. The closer a property gets to a foreclosure the harder it is to convince the bank to perform a short sale. The closer to a foreclosure the more money they spend, thus deterring them from doing a short sale. If you think you need to perform a short sale, time is of the essence; the sooner you start the process the better. Waiting to long can trigger the ramifications of having the short sale denied.

    9. I can perform a short sale by myself without a Realtor.(True, But good luck!)( this is sometimes what a bank will tell you)

    A short sale is a very complex process and each individual short sale is unique. In a short sale situation, as a consumer you need your interest protected. Dealing directly with the bank, this eliminates a third party involved looking out for your best interest. It takes many short sale transactions and years of experience to know the ends and outs of short sales. An experienced Realtor knows how to navigate through the complexities of the short sale to get you in the best position possible.

    10. I was denied for a loan modification, so I know I will get denied for a short sale (False).

    A short sale and loan modification are two separate departments at the bank. These processes are totally different in approval and denial. If you got denied for a modification you still can perform a short sale, in some cases you can get a short sale approved faster than a loan modification.

    Hope this help if you need further info contact me through my site at http://www.moorebrittingham.com/

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