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Attorney Tom OlsenShort Sale Mortgage Information
Attorney Tom Olsen
In this declining real estate market, many homeowners find themselves upside down in their home loan(s), owing more to their mortgage lender(s) than their property is currently worth. If they are lucky enough to find a buyer, they may have to do a short sale to get the deal closed. A short sale refers to a transaction where the proceeds of the sale will not be sufficient to cover the outstanding debt and closing costs. When the seller is faced with this dilemma, there are generally three options: (1) the seller contributes the additional funds required at closing to pay the mortgage(s) in full; (2) the seller allows the property to go into foreclosure; or (3) the seller approaches the lender(s) and asks them to accept a lesser sum in full settlement and satisfaction of the outstanding loan.
NOTE: The Mortgage Forgiveness Debt Relief Act of 2007 provides that the forgiveness of the loan debt is no longer considered as taxable "income" to you. In order for you to be a candidate for obtaining a short sale, all of the following factors must be "TRUE":
- The home in question your primary residence? As of this date, most lenders will not do short sales on investment property.
- You were completely truthful in your loan application? If you weren't, you could be opening yourself up to prosecuted for mortgage fraud. In a short sale, the lender will require copies of your tax returns and, therefore, they will see if you misstated your income on your loan application.
- You have no other assets of substantial value. Obviously, the lender won't agree to a short sale if you have $100,000 sitting in the bank.
- Your circumstances have legitimately changed since your loan application. For example, you have lost a job or incurred extraordinary medical expenses.
- You are willing to provide your lender with copies of past tax returns and a complete financial picture backed up with solid documentation.
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