Short Sale Misconceptions

Common Short Sale Myths and Misconceptions

Below are some of the common myths and misconceptions we have heard from the roughly 8,000 clients we have had real estate consultations with since 2006.

1. “I don’t have a hardship”

We work with homeowners to truly figure out what their hardship is, there are a lot of reasons that will qualify as a hardship and we have seen a lot of homeowners get short sale approvals when they initially thought they did not have a hardship.

2. “It is an investment property, I hear the lender won’t allow a short sale.”

Tell that to homeowners of the hundreds of approvals we have negotiated on homes that are not primary residences.

3. “I make too much money.”

We have negotiated short sales on million dollar plus properties where the homeowner’s monthly income may be more than most working people see in a year. It is very case specific.  We have had many clients who make over $250,000 and several over $500,000.  The income of our clients ranges from $0-$1,000,000 yet their short sales were approved. We have had business executives, business owners, doctors, lawyers, accountants, real estate professionals, engineers, etc.

No funny business, and there is complete transparency with the lenders.  We have clients ask us if they should hide money or transfer assets, the answer is always NO.  Short sale fraud is very serious and getting a short sale approved is not worth not being able to sleep in the future wondering if the lender will come after you for fraud.  We are successful because it is about how we present the client’s accurate situation to the bank and the fact that we know and understand California law and apply it to each individual situation.

4. “I will have to pay tax on the difference between what I owe and what the home sells for.”

In the hundreds of short sales we have negotiated most do not end up having to pay on an issued 1099-C cancellation of debt. While we are not CPA’s, there are many exceptions to this rule including the Mortgage Debt Relief Act of 2007 which applies to most homeowners and the rule of insolvency which typically applies to the rest if the first does not as well as non-recourse. Of course there are some clients who do end up having a tax liability and this is important to ascertain before committing to a short sale so that you do not receive a large tax bill surprise.  Even if you do end up owing a tax liability to the IRS you have to weigh the cost of that bill with keeping the property depending on how much in the red you are each month and how upside in value the home is.  Please see this important IRS resource guide; in particular pages 4 and 5 of the PDF document.

5. “It will ruin my credit.”

If you need to stop making your mortgage payments for financial concerns or because your lender is requiring that you show your hardship by being in default, what will affect your credit is the fact that you will have missed mortgage payments (30 days, 60 days, 90 days, 120 days late). The credit impact to your score will be immediate but after the short sale is finalized and the missed payments fade into the distance and are reflected as such on your credit, as long as you maintain creditworthiness with regards to your other debts you will see your credit score go up fairly quickly. In fact you can still get an FHA loan within 3 years of a short sale if you were late on payments in the 12 months that preceded the short sale, or immediately if you were not delinquent in those 12 months.

6. “But the market will get better soon, we have to be at the bottom, my home will start going up in value soon!”

Even though after years of declining home prices have started in increase, nearly 42% of Sacramento area homeowners are still upside down and 35% of California homeowners are still upside down a lot by hundreds of thousands of dollars.  The increases we have seen are not going to erase this anytime soon.  In addition while millions of homes have foreclosed, millions more are still set too. Called “shadow inventory” statistics and research show the number of homes that have already been foreclosed on but not yet listed or resold, or are in the foreclosure pipeline to be foreclosed on to be in the millions, some put as high as another 2-7 million homes.

This shows that property values may experience another decline due to the number of discounted properties that may come on the market, and in your neighborhood. In addition interest rates play a large part in rising or declining home prices.  Interest rates have been historically low but have started to increase lately.  With reports that the Government will be providing less assistance in the future the interest rates may rise even higher which may cause home prices to start increasing and perhaps even decline if there is too much inventory or if buyers are not buying.

7. “You have to be late on your mortgage.”

While it is true that most short sales are negotiated with homeowners who are late on their mortgage this is typically more of a function of the homeowners financial situation and the fact that they simply can’t afford to continue making payments on a home which they wish to rid themselves of. If you are in a different financial situation and can afford to continue to make your mortgage we have had success in homeowners doing so and getting a short sale approval. However we warn all of our clients who wish to try this that their current status may induce the lender to deny the short sale and in order to get an approval the homeowner must become delinquent. At this point it is a benefit analysis that we engage the homeowner in to see which choice is best for them and their particular situation.

8. “I hear horrible things about trying to work with Bank of America/Countrywide, OneWest/IndyMac, PNC, Green Tree, etc.”

Yes we hear and experience these horrible things as well, and while the process may take longer and be a bit more of a harrowing experience with certain lenders and servicers (PNC, SLS, Green Tree, 21st, FHA loans, etc) , it is still possible to achieve a positive end result, we do every week!

9. “I don’t want my neighbors, friends, etc to know I am short selling my home.”

While we can certainly understand that you may feel embarrassed you really ought not to be. The decline in property values is not your fault and the truth remains that even though your home is upside down your personal circumstances may dictate that you need to sell your home. However, we do understand that some homeowners don’t want others to know the status of their sale and you need not worry. All public information regarding the sale of your home does not need to indicate that it is a short sale if you do not want it to, it would only be indicated in the private listing information on the MLS that only licensed real estate agents have access to, not your neighbors.  We don’t have to put up a sign either.

10. “I already bought a new home, I have been told by other agents they won’t take my listing because they say the short sale has no way of getting approved.”

Again, tell that to the many clients whose short sales we have successfully negotiated for their previous homes where they have already bought a new home.  The reasons for purchasing a new home without being able to traditionally sale your previous home are many, and we fully explore each of these reasons to explain this to the short sale lender.  We are always baffled when we hear of agents declining these types of listings.

We had a client recently who had before retaining our services, consulted with an agent in the area who unabashedly totes themselves as a top short sale agent. This individual has an entire blog article dedicated to telling people who have bought a new home that there is no way their short sale will get approved and that no agent (including this individual) will handle their listing once they have done so.  This agent explains that they have experienced first-hand denials for these types of short sales and that as a result they “learned their lesson” in taking these listings on.  This agents harsh words had this client in tears and sheer panic, and ultimately this agent is completely wrong.  It may be that this agent simply does not know how to negotiate these types of short sales.

This same client retained our services, and her short sale was approved and escrow successfully closed less than 3 months later!  Again, with complete transparency to the bank.  They were aware she had purchased another home for valid reasons and it was not an issue.  The seller was ecstatic.

11.  “Home values have gone back up, I want to sell but I am going to hold tight as I believe that I will have equity again in the near future.”

While it is true that home values have increased (and already in some areas are starting to decrease again (October 2013), depending on when you bought your home or if you refinanced and took out money later (creating a recourse loan), it may still be many years before you have equity.  We continuously see homeowners who are still many hundreds of thousands of dollars upside down.  They have held on and seen their entire neighborhoods turn over.  They may be one of the only ones left in their neighborhood who bought when they did.  Their neighbors now consist of people who may be in a completely different income bracket than they are.  They may have neighbors who are renters now.  We have seen homes that at the height were selling for $1,500,000 which then sold for $500,000.

If you are not sure of your home’s value or if you would like to see on paper using numbers and statistics how long it may be until you have equity again please contact us for a free home value property report. Please remember when making the request to include your current mortgage balances so that we can prepare this for you.  This way you can truly assess the situation you are in and looking at the numbers can decide if you would like to wait it out or move on.

Our Sacramento short sale clients commonly have these above short sale myths and short sale misconceptions about getting a Sacramento short sale approval or short sale hardship.

We are experienced Sacramento Real Estate Attorneys and Sacramento Realtors. We are a unique and powerful combination and can help you with your real estate legal issues.  We have helped thousands of people with pressing real estate issues find solutions and relief through the use of short sales, deed in lieu of foreclosures, strategic foreclosures, mortgage debt settlements and legal real estate review and advice.

Our real estate attorneys have achieved proven results and can give you the great legal advice and strategy needed to get you the results you want. Contact us today to schedule your complimentary attorney consultation by clicking HERE or by calling 916-999-1376. We look forward to helping you with all of your Sacramento real estate needs.