Short sales are those done for less than the amount owed on the mortgage, and they are usually used to help homeowners stop foreclosure in Oklahoma. A short sale comes with certain emotional, financial and legal disadvantages for buyers and sellers, which will be discussed below.
In a short sale, lenders agree to take less than the homeowner owes in exchange for releasing the property lien. While a lender may agree to such an arrangement, it may not accept the amount as full payment. The difference is referred to as a deficiency, and a lender’s ability to sue depends on the short sale agreement’s terms, so in order to prevent a deficiency judgment, the borrower should negotiate for favorable agreement terms.
Following a short sale, lenders may forgive a deficiency and provide the seller a 1099-C (debt cancellation) form. Forgiven deficiencies are regarded as taxable income after the expiration of the Mortgage Forgiveness Debt Relief Act, which allowed taxpayers to exclude certain discharged debts.
Short sales can have serious impacts on the seller’s credit report, but the extent of the damage usually goes undiscovered. Some believe that a short sale has less effect on a person’s credit score than a foreclosure does, but the FICO score’s creators say the effects are the same.
The Lengthy Process
A short sale can take a long time to complete, and buyers must wait for the lender to accept their offer. Lenders often reject the first offer they receive, especially if it’s lower than the listing price. Real estate agents often set these prices, and lenders often make higher counteroffers—which can prolong the process; however, those with Freddie Mac or Fannie Mae loans are under a guideline that requires lenders to respond to requests within 30 days.
In many cases, a short sale’s listing price will seem almost too good to be true. Realtors sometimes set prices low to attract more offers, and many are listed at prices substantially below a lender’s lowest offer. If a house has an asking price below market value, it can lead to bidding wars between buyers.
With all the above risks for sellers and buyers, it is hard to understand why short sales are so common, but if both sides can negotiate for favorable terms, the deal can be done in both parties’ best interest. For more information visit us at W Properties.