What is a "short sale"?

This is pretty straight forward language: http://en.wikipedia.org/wiki/Short_sale_(real_estate)

I had to look it up when I was (idly) searching the MLS last week. There's a condo for sale at Rollin Tide that's a short sale.

Thanks Mermaid, very helpful! Is it correct to think that any seller doing a short sale is really hurting for money? The link stated this sale is often last step before foreclosure, how long do banks normally allow someone to live in a home they are not, or only partially paying for?

It doesn't necessarily mean that the seller is hurting. A lot of sellers want to stop paying on a piece of property that is worth a lot less than what they owe. Therefore, they stop paying, put it on the market, hope for an offer,and hope the bank will allow them to sell for less than they owe. Sometimes, the bank will allow the seller to sell for less, however, they then make arrangements with the bank to pay off the balance. Every Bank handles it differently. I have heard that the banks won't even consider a short sale, in other words wont discuss an offer, unless seller is delinquent in payments. It seems we learn something new about short sales on a daily basis. It is a crazy market not just here, but across America.

Thanks so much! I am definitely learning alot!

We all are.

As was said, all banks are different but I have heard that most will not even consider a short sale unless the buyer can prove they are unable to pay, not that they just don't want to.

I wrote a "market pulse" last month about short sales and put links to active short sale listings:

http://thewiredagent.com/pulse_20.html

Thanks, I enjoyed your article. What about the Freeport area? I have seen one listing for a home in Hammock Bay as a short sale.

If one does intend to try a short sale, make sure to specify "without recourse" for the bank, otherwise they will come after one for the difference in selling price and amount owed.

Even in short sales, most banks will not forgive the balance owed, so, "without recourse" is not likely an option.

Even in short sales, most banks will not forgive the balance owed, so, "without recourse" is not likely an option.

....especially if the owers have other assets to tap. Lots of well-financed folks bit off more condos/homes/lots than they can comfortably chew. They would love to do a dump-and-run (like you can do in the stock market) but are discovering they may just have to keep throwing their money down a black hole for the time being....RISK is a four-letter word.



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So, is it even worth looking as something listed as a short sale subject to bank approval?

Caveat emptor.

So, is it even worth looking as something listed as a short sale subject to bank approval?

Why not? Just be aware that the banks usually take longer to complete a deal than a deal directly with the seller. If you have patience and make an offer within the banks acceptable threshhold than you can get a great deal.

Just have your buyer's agent find out all they can from the listing agent. If the sellers have already proven their hardship and (lack of) assets and are in communication with the lender than you will most likely get a better deal in pre-foreclosure (short sale) than waiting until after foreclosure- the banks overhead of the property rises significantly when it becomes an REO.

I just took a short sale course at the board. Wow! Lots to learn. I have done two of these so far and seem to be more on the way. If anyone would like a short sale checklist, PM me and I will send you one.

So, is it even worth looking as something listed as a short sale subject to bank approval?

Could be, but not necessarily. Remember that many people who are short selling now, are the ones who bought when the market was peaking. You may find better values by people who are not in trouble, but bought long enough ago to still make a profit, and under-price, even the short sellers. Patience is a must if you make offers on short sales. I've heard some recent reports of people's offers getting approved by the lender, almost immediately, while some others may take as much as 4-6 weeks before the selling agent can even track down the lender's representative handling short sales and receive a response. Some lenders don't seem to be in a hurry, or maybe they are starting to get busy.

Just remember that short sale doesn't always equate to a great buy, but sometimes it may.

Could be, but not necessarily. Remember that many people who are short selling now, are the ones who bought when the market was peaking. You may find better values by people who are not in trouble, but bought long enough ago to still make a profit, and under-price, even the short sellers. Patience is a must if you make offers on short sales. I've heard some recent reports of people's offers getting approved by the lender, almost immediately, while some others may take as much as 4-6 weeks before the selling agent can even track down the lender's representative handling short sales and receive a response. Some lenders don't seem to be in a hurry, or maybe they are starting to get busy.

Just remember that short sale doesn't always equate to a great buy, but sometimes it may.

I could not agree more. Very well said....

The big surprise I learned last week from a real estate friend is that the difference in the loan amount vs. the amount of the short sale is considered by the IRS a short term capital gain so the seller gets hit with gains taxes when the lender "eats" the loss.

The big surprise I learned last week from a real estate friend is that the difference in the loan amount vs. the amount of the short sale is considered by the IRS a short term capital gain so the seller gets hit with gains taxes when the lender "eats" the loss.

If it was the seller's primary residence, W gave them a "Get out of Jail Free Card":

"President Bush signed into law a new measure giving tax breaks to homeowners who have mortgage debt forgiven. Under preexisting law, the debt forgiven by a lender, such as for short sales and refinances, was generally taxable to the borrower as debt discharge income. With the passage of the Mortgage Forgiveness Debt Relief Act of 2007, a taxpayer does not have to pay federal income tax on debt forgiven for a loan secured by a qualified principal residence.

This tax break applies to debts discharged from January 1, 2007 to December 31, 2009. Qualified principal residence indebtedness is debt incurred in acquiring, constructing, or substantially improving the residence (up to $2 million for refinances).

For purposes of calculating capital gains, any debts discharged excluded from income under the new law must be subtracted from the basis of the taxpayer's principal residence (but not below zero). However, taxpayers may generally exclude from capital gains income up to $250,000 (or $500,000 for married couples filing jointly) for properties owned and used as their principal residence for at least two of the last five years."

http://activerain.com/blogsview/315203/MORTGAGE-FORGIVENESS-ACT-2


(Another reason to get out from under those properties before the clock strikes midnight on Dec 31, 2009.)


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Great point Shelly, 'W' sure did that.
I wish he had given me a Get Out Of Jail Free Card so I could dump some of my investment real estate at 50 cents on the dollar...

Great point Shelly, 'W' sure did that.
I wish he had given me a Get Out Of Jail Free Card so I could dump some of my investment real estate at 50 cents on the dollar...

It ain't anywhere near being over yet....who knows what other goodies they'll give away at the taxpayers' expense.


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The big surprise I learned last week from a real estate friend is that the difference in the loan amount vs. the amount of the short sale is considered by the IRS a short term capital gain so the seller gets hit with gains taxes when the lender "eats" the loss.

However, the difference between the loan amount vs the amount of the sale, has to be forgiven by the lender, in order for the IRS to tax it as short term gains. I have yet to hear of one lender in this area forgiving the difference. Typically, the difference is still tied into the original loan, and the seller continues to pay the interest on the new lower amount of the loan. The sale of the property goes to reduce the loan amount.

If you haven't already learned, the IRS sux. If we could eliminate the IRS, half of the problem would be solved, and we could reduce Federal spending greatly.

We agree on the IRS...

I had assumed some of the lenders were buying down some of the loans. Your information is interesting and disappointing.

However, the difference between the loan amount vs the amount of the sale, has to be forgiven by the lender, in order for the IRS to tax it as short term gains. I have yet to hear of one lender in this area forgiving the difference. Typically, the difference is still tied into the original loan, and the seller continues to pay the interest on the new lower amount of the loan. The sale of the property goes to reduce the loan amount.

If you haven't already learned, the IRS sux. If we could eliminate the IRS, half of the problem would be solved, and we could reduce Federal spending greatly.

Let me get this straight....a person has a condo that has a $450,000 mortgage @ 6.50% fixed with 26 years remaining; they can only sell it for $350,000. So they sell the property, but retain the loan. They apply the $329,000 (net of the 6% Realtor's commission) to the original loan, and continue paying $121,000 @ 6.50% for the next 26 years. I imagine that will bring the monthly nut down to a more reasonable payment--but then what collateral does the bank have to back the loan?

And does the bank sell the property? Or does the loan-ower sell the property?

Or am I missing something?

Or do I need another JB on the rocks?

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Let me get this straight....a person has a condo that has a $450,000 mortgage @ 6.50% fixed with 26 years remaining; they can only sell it for $350,000. So they sell the property, but retain the loan. They apply the $329,000 (net of the 6% Realtor's commission) to the original loan, and continue paying $121,000 @ 6.50% for the next 26 years. I imagine that will bring the monthly nut down to a more reasonable payment--but then what collateral does the bank have to back the loan?

And does the bank sell the property? Or does the loan-ower sell the property?

Or am I missing something?

Or do I need another JB on the rocks?

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Under the above scenario what collateral does the bank have before the short sale anyway? A $450,000 mortgage on what would net $329,000. Some people would carry the excess to save their credit and live up to an agreement. Personally it wouldn't be enough for me but I am a schlub.