What is a “Short Sale”?

After rising dramatically for a few years, home values dropped after 2008.  If you bought a home while prices were high, you could find yourself owing more on your mortgage than your home’s current value after prices dropped.  Then, if you wanted to sell your home, you would either have to pay money to sell it or negotiate a ‘short sale” with your lender.  The aim of a “short sale” is to have your lender agree to accept the net sales proceeds, even if the amount is far less that the total you owe on your mortgage, and not hold you personally liable for the balance due.

How do I negotiate a “Short Sale”

Just don’t try to do it all by yourself.  Find a REALTOR who is dependable and experienced in short sales.  A good REALTOR can help you market your home and find a qualified buyer.  But, under Maryland law, the REALTOR’S role is still limited.  A REALTOR may communicate with your lender, but may not negotiate with your lender.

What’s the difference?

Think of “communication” as carrying information back and forth, with little comment on the information.  Think of “negotiation” as using persuasion to make a deal.

Who can negotiate for me?

In Maryland, a Maryland attorney or a Maryland MARS provider.  A MARS provider, or mortgage assistance relief services provider, is a person who can provide certain mortgage relief services as provided by Maryland law.  Current law does not require that MARS providers be licensed.

Is there any way I could end up getting some money?

Maybe.  Some lenders will approve a relocation allowance for a homeowner who still lives in the home and sells through a short sale.  The most usual amount of the relocation allowance is $3,500.00.

What is the biggest pitfall?

You need to be very careful that you do not still owe a lender money after the short sale closes.  Some lenders have released the liens of mortgages to facilitate a short sale, but have kept their rights under the promissory note.  This means that the lender could still sue you for the balance due after the sale closes.  It’s a very good idea to have your attorney review the lender’s payoff statement and the other closing documents before you sign.

How should I protect myself?

If you sign a listing agreement with a Maryland REALTOR, there will be an addendum that advises you to check with an accountant, a lawyer, and a financial advisor.  You should.

Are there tax consequences?

Yes, there can be.  Your lender could issue a 1099C form to the IRS and you could end up owing the IRS money.  That is why you should always check with an accountant before agreeing to a short sale.

Will a short sale affect my credit?

Yes, it may.  That is why you are advised to check with a financial advisor.  But, a short sale will probably not reflect as badly upon your credit as a foreclosure would.

If I have filed Bankruptcy, can I still do a short sale?

Yes.  If you have a pending Chapter 13, though, you will need to get the Court’s permission.  If you have been discharged from a Chapter 7, you can simply list and sell your home.  If your personal obligation to pay the mortgage debt has been discharged in Bankruptcy, you may not need to worry about either selling your home and owing your lender more money or about selling your home and ending up owing the IRS money.