Salt Lake Foreclosures-- Short Sales Demystified

With the market in a more, let's say, "flexible" state right now, one of the buzz phrases that keeps floating around with our clients is short sale. Because of this, we thought we would share a little information on what a short sale is, what it is for, and how it works.

What is a short sale?

The definition of a short sale is clear and simple. A short sale is when the lender of a home agrees to the sale of a home and takes less than the amount owed on the mortgage. If you owe $200,000 on a home and its market value is only $180,000, you may sell the home for $180,000 and the bank will agree to 'forgive' the remaining $20,000.

How do you qualify for a short sale in Salt Lake City?

There are two ways: you must owe more than the value of your home. This is most often due to a change in market conditions, like we're seeing in Salt Lake City. The second is due to personal hardship, i.e., you lose your job and can no longer make mortgage payments. One thing to mention here, you do not have to be in default on your mortgage to qualify for a short sale. If you feel you can no longer afford the home you are in, contact your lender immediately, before you become late, and speak with them about a short sale option.

How does a short sale work?

Generally you put your home up for sale with a Salt Lake real estate agent.  Lenders will usually not begin the short sale evaluation process until they have an acceptable offer on your home, so pricing it correctly is critical.  Once you accept an offer, that offer is then submitted to the lender along with an extensive list of documentation required by the lender.  Part of the documentation is a hardship letter explaining why you feel you can no longer meet your mortgage obligations.   The lender then takes all of this and decides whether or not to approve the short sale.

Each lender has their own criteria for approving short sales but ultimately their decision is based on whether they feel a short sale is better or worse than foreclosing.  The lender is not out to make this easy; they are keeping their own interests in mind so the process can take several months.

What about the amount that is forgiven?

Under normal circumstances, any amount forgiven by a lender could be considered ordinary income and taxed accordingly. However, thanks to the Mortgage Forgiveness Debt Relief Act of 2007, a seller may be able to waive the tax obligations--a good real estate agent can refer a CPA to you who will help you avoid paying taxes on the forgiven debt.

Hopefully, this brief overview of short sales gives you a better idea of what they are and what they entail. Please keep in mind - short sales are a lengthy and arduous process. They are not a quick fix and may not always be approved by a lender. If you feel you may be facing a Salt Lake Foreclosure and need advice on short sales, please fill out the short form below and we will contact you soon.