Q: What is a short sale?

A:         A "short sale" occurs when a mortgage lender or lenders agree to accept less than the total amount of money they are owed on a piece of real estate in order to facilitate the sale of that property.

This is generally accomplished when the owners of the property have fallen behind on their monthly mortgage payments and a foreclosure of the property is looming.

A "short sale" allows the property to be sold and the lender to recoup some of its losses.  It also allows the homeowner or property owner to sell the property and avoid having a full foreclosure further ruin their credit and potentially severely impede their economic future for years to come.

Q: What qualifies a property for a short sale?

A:         The owners of the property, in most cases, must be at least thirty (30) days behind on their mortgage payments and facing a potential foreclosure action.

Further, the owners generally must show a financial inability to get caught up with their mortgage payments as well as a further inability to then continue timely payments in the foreseeable future.  A recent hardship, such as a loss of employment, may favorably play into the analysis.

The property value on the open market today must also be less than what the owners owe their mortgage lenders.

Q:    Do I need to take my lenders calls if I am in default?

Q:    Why would a lender accept less than what is owed?

A:        Foreclosures are a very expensive and time consuming legal action for mortgage lenders in our state.  Once the six (6) month non-judicial foreclosure process is completed and all the fees are paid, the lender then has to sell the property to try to recoup its money.

This involves the sale costs to the lender that the now foreclosed owner would have been facing if they tried to sell the property on their own.  Repair costs, marketing costs, Realtor^® commissions, appraiser costs, title fees, escrow fees, excise tax, property taxes as well as having their money tied up in a non-productive asset are all borne by the lender who foreclosed.

In today's declining real estate marketplace there is a very good chance that lenders will still end up selling the property for less money than they were owed except that now they have incurred all of these additional costs of foreclosing as well as all the carrying costs on the property, such as real estate taxes and utility bills, while the property sits vacant.

Because of these many costs and the unpredictability of the declining value marketplace, a properly submitted and documented short sale often can often be very appealing to a lender.

Q:    Are there tax ramifications?

A:        Presently through December 31, 2012, if you owned and occupied your home as your principal residence for two years or more, then you may be exempt from recognizing as income the difference between what the bank accepts to clear your mortgage/deed of trust and what is actually owed to the bank.  If you have not owned and occupied such dwelling for two years, you might be liable for reporting such “forgiveness of debt” as income.  You should consult with your attorney or tax advisors for specific advice for your situation.

Q:    Am I liable for Real Estate taxes during foreclosure or short sale?

Q:    What happens to my Homeowners Insurance?  Do I need to pay for it?

The short video below is about what happens during the  short sale and foreclosure process and what considerations need to be made regarding homeowners insurance.

Q:    Are there liability ramifications?

A:        If your home is sold in a “short sale” (the lender takes less than the lender is owed) oftentimes the lender may require a “Reaffirmation” of the debt.  Thereafter, the lender, or someone they sell or assign their rights to, may demand from you what the lender lost.  However, if your residence is foreclosed through a Trustee’s Sale, Washington law extinguishes any right of the foreclosing lender to pursue you for a deficiency.  Other lenders may still sue you under their promissory notes.    Accordingly, signing any reaffirmation agreement may not be in your best interest and you should seek legal counsel prior to signing such agreement for specific advice for your situation.