#10:  I can’t make my house payments, but I do have an ability to pay back all or part of the negative equity.  If  I want to preserve my credit score, is a short sale right for me?

Answer: Probably, not. In cases where the seller can pay back all or part of the negative equity (usually to the 2nd lien holder), it makes sense for them to work out a repayment plan.  The lender will then release the lien and allow the home to close.

#9: If I pay mortgage insurance and default on my loan, why wouldn’t my mortgage insurance cover the deficiency amount?
Answer: Mortgage insurance protects the lender against loss when a borrower defaults on a loan.  Mortgage insurance does not protect you, the borrower, at all.

#8: Do I have to have my home ‘Approved’ by the lender prior to offering it for sale as a short sale?
Answer: No. Technically speaking there is no such thing as being ‘Short Sale Approved’.  The actual approval only happens when the lender accepts a short sales offer from a buyer.

#7: I just missed a payment and I expect I will miss more, how long does the foreclosure process take?  Is there time to do a short sale?
Answer: The time required to complete the foreclosure process differs by state.  For example, in the Midwest, a foreclosure can take over a year.  By contrast, a California foreclosure may take more than 6 months.  In general, a well priced short sale being processed by an educated short sale listing agent will sell and close in less than 120 days.  Due to the time frame required to complete a short sale, the sooner you contact a real estate agent qualified to do a short sale, the higher the likelihood that you will avoid foreclosure.

#6: Will I still have to pay property taxes if I do a short sale?
Answer: Property taxes will always have to be paid as part of any accepted short sale.  Whether it’s you or the lender depends on their policies and the specific agreement you reach while negotiating the short sale.

#5: I owe more than my home is worth and I can’t make the payment.  Do I have to somehow qualify for a short sale?
Answer: The simple answer is NO.  If a borrower can’t make the payments and is otherwise insolvent, the borrower qualifies for a short sale.  Note: insolvent simply means their total debts are greater than their assets.

#4: Will I have to pay income taxes on the debt forgiven by the lender?   I have heard that I will get a 1099 from the lender.  Will the loss the lender takes be treated as a taxable gain to me, the seller?
Answer:  It WAS true.  Now it is not.  Consult your own Tax Attorney or Qualified CPA.  Very recently the tax law was modified and now most people who do a short sale will not have any tax liability.

#3: How does my listing agent get paid?  Who pays the agent's commission?
Answer: The lender pays the agent's commission along with all the other usual closing costs.  Lenders require that the borrower use a real estate agent to list the home as a condition of the short sale.  The lender wants validation that a real estate professional is actively engaged in marketing the  property.  Attempting to sell your property as a For Sale By Owner is not sufficient.

#2: Do I have to miss a payment to do a Short Sale?
Answer: No. Late last year most major lenders started accepting short sale offers from sellers who have never missed a payment.

#1: I want to do a short sale, but I have a 2nd mortgage.  Does this make me ineligible for a short sale?
Answer: No. Both of your lenders will need to be satisfied in some way to complete the short sale.  If your first lender will be paid off by the sale, then you just negotiate the terms with the second lender.  Most short sales do involve both the 1st and 2nd lien holders.

Tags: short sale, foreclosure, For Sale By Owner, forgiven debt, 1099, IRS, time for foreclosure, foreclosure process, negative equity, deficiency amount, 1st lien, 2nd lien, borrower default, 2nd mortgage, property tax, commission, notice of default, mortgage insurance