This was taken from a conversation with a potential short sale client in Kansas City. These are only a few of the questions you may have about short sales. For more information or to discuss your specific situation, please call Ron Henderson at 816-651-9001.
From what I've been reading on the internet about short sales, I need to owe more than the actual worth of the home. Is that correct? Yes, the house has to over-leveraged.
And I need to be having trouble with month to month expenses? Yes and the "hardship" needs to be viewed as long term, typically 3 months or longer. Financial hardship is determined by the financial infomation that you will have to submit to your lender (2 paycheck stubs, two recent bank statements and 2 years tax returns and financial statement showing that your expenses are higher than your income). Financial hardship can be due to the loss of a job or possibly a medical condition that prevents you from working. Each situation is different.
You can't have enough money saved to pay off the difference between what the house would sell for and what you owe? If you have money any where other than a retirement account they will require that you use that to make up the difference at closing to pay all of your obligations in full. If the only accumulation of money you have is in a retirement account (one that will incur a penalty if withdrawn) they cannot require that money be used but they will likely require that you sign an unsecured promissory note for a portion of the loss they are expecting to take since you do have some ability to pay.
Do I need to be late on at least one month payment? You do not need to be late to apply for a short sale, but you will need to be behind in your payments for them to approve you for a short sale. It comes down to why would the investor agree to take less money than they are contractually owed if they are still getting their money each month. There are many people out there that want to do short sales because they don't like the idea of paying for a house that is no longer at the value it was when they bought it, even though they can afford it. Unfortunately no one guaranteed that the price of houses would always go up when we bought them.
What if I have a second mortgage? Having a 2nd mortgage is an issue only if you want a Deed In Lieu, not a short sale. I've done short sales on houses with 3 mortgages, so it's not a problem.
If the house is short saled, will the second become due in full? No.
It appears that the latest legislature wipes out the consequence that the amount of foregiveness is considered "income" for tax purposes. Is that the case? Yes, but you have to prove that you were insolvent at the time of the short sale and the house has to be your principle residence.
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