Are you thinking… should i short sale my house? Confused about the short sale vs foreclosure option to stop foreclosure?I know you are not thinking clearly because you’re worried about stopping foreclosure, your family becoming homeless, having trouble sleeping at night due to worry, feeling stressed about making the wrong decision, embarrassed your neighbors may find out you’re facing foreclosure, worried about your credit report displaying you had a foreclosure & a really bad credit score.How can you possibly think clearly with so many issues and worries you are facing at this moment? This is why I have taken out time, hours of preparation, research to help you get a quicker understanding of your options and avoid making a costly wrong decision. Do You Really Understand… What Is A Short Sale?It is one of your options, so when your property is sold, the money the lender gets from the sale is less than the balance you owe on the mortgage debt balance. So if you cannot afford to re-pay back the total liens, the holders of the liens will release it and accept the reduced amount that you currently owe on the house. What Are The Tax Consequences Of A Short Sale? The amount that’s being taxed is the forgiveness amount on the mortgage or the difference of the mortgage and the property’s final selling price. This is considered income by the IRS and a 1099 form from the lender will be provided after the short sale transaction.There’s an exception which is called the Mortgage Forgiveness Debt Relief Act of 2007 which terminates this tax up to two million dollars which applies only to residential owner occupied real estate. For married couples who do their taxes separately, the limit is split between them. If someone does not qualify for this, the bank may agree to report the forgiven amount as a gift. In this case, the short sale cannot be taxed by the IRS.Another alternative is to file for… bankruptcy or liquidation…!!! How Does A Short Sale Work? – 7 Steps Short Sale Process* You must contact the bank to discuss the policies and procedures.* You must compose a letter to release documentation about the loan and the property. This information is distributed to the buyer and the escrow agency.* The lender will examine the settlement statement which entails the selling price and what is left of the loan balance. Closing numbers such as commissions, fees, and expenses are included.* You have to submit a hardship letter which will describe your financial problems. It is a good idea to refer to some short sale hardship letter examples to use as a guide before composing yours. It should be short (a few sentences) and not lengthy for easy reading. Make the reader feel the extreme anxiety as to why you can no longer afford the property. So it’s imperative to build a strong case. Most importantly do not blame the lender. Remember the goal is to request assistance and not to offend.* These documents include banking statements, investment portfolios, employment pay stubs and other financial records.* The lender will consult with the broker to evaluate the structure of the house and how much it’s worth when comparing it to other properties.* The lender will examine closely that the purchase agreement and commission amounts are agreeable to all the parties. How Does A Short Sale Affect Your Credit? If your credit score is important too you and wish to protect it at all cost then… this option is a safer bet for you since it is not as a serious as, when the bank forecloses on your property. The FICO score damage to your credit report is less.Example: Your FICO can drop between 50 to 150 points Versus 210 to 420 points for a foreclosure10 Advantages To Doing A Short Sale* Top benefit is – Debt forgiveness which is when there is no monies owed after this transaction. For example, if your home is worth $200,000 and it’s sold for $100,000 the left over amount is cancelled by the banks. Also, what’s eliminated includes closing costs, taxes and other fees.* You don’t have to pay rent or make mortgage payments during the short sale process* You’re in the driver seat not the lender* You’ll avoid the embarrassment and your credit report showing a foreclosure* You can be up to date with your mortgage and still do a shortsale* Your home will be sold like any other home in your neighborhood… it’s your secret* Credit Score Damage… is less (FICO drops 50 points – 150 points Vs 210 to 420 for a foreclosure)* Deficiency Judgement – can be avoided by making sure your lawyer or realtor has negotiated with your lender in writing to not come after you to collect the deficiency balance owed after you sell your property* You can get Tax Forgiveness based on the Mortgage Forgiveness Debt Relief Act of 2007 (Note: Consult with a professional first accountant, IRS, to make sure yours will be forgiven.)* You may qualify for some cash as a closing incentive. These cash incentives range from $2,000 to as high as $35,000 paid by some banks, HAFA, FHA (hud) to short sale your home. You can use this money you receive at closing for moving and relocation costs in addition to whatever you save up while youdidn’t make payments to the bank.* You’ll end up with a lower living expense related to rental payments which will be less in most cases. Disadvantages To Doing A Short Sale* Cannot stay and save money as you will be expected to move out as soon the deal closes* Potential tax consequences if you borrowed against your principal and used the funds for some thing else other then house related expenses, once again consult with a professional short sale lawyer, accountant to make sure you will not have to pay back taxes to IRS.* If you have multiple lenders who may have a lien to your property is can make it extremely difficult to do a successful short sale. Make sure you check to see if you have more then one lender if so… slow down and consult with your attorney again to see if it is worth it to do the short sale* A foreclosure can take six to twelve months, credit scores have a greater negative impact, and the waiting period of purchasing another home is five to seven years.In a short sale, the process can take one to six months, the penalties on the credit scores are less severe, and there’s a greater chance of purchasing a future home by re-applying for a new mortgage within two years. Advantages To Letting The Bank Foreclose On Your House You can stay longer in your property as opposed to a short sale. Save the money you would paying to your lender, you pocket it and save it to move out to your next new apartment with your family and start over with the least amount of hardship if you have some money at least to move on with your life after foreclosure. Disadvantages To Letting The Bank Foreclose On Your House* Top Disadvantage – associated with foreclosure is what it does to your credit score rating. A house foreclosure will appear on your credit report because it is a loan with the mortgage lender. As a result, for any credit in the foreseeable future, a financial institution will be able to see that you had a foreclosure which will remain on your credit record for at least 7 yrs. * When the mortgage lender actually sells the house and is sold at a sum less than what is due to the lender, you are liable for this difference. If you are unable to pay the difference, then you may have to file for bankruptcy also. * A foreclosure will be handled as a very serious blemish on your credit history. You will have a harder time getting a lender to lend you money to buy a house or even other personal items. Bottom line your credit history is “Killed” with one powerful shot. * Job hunting will become more difficult. It is a known fact that potential new employers will look at your credit history background, in addition with some employers if they see a foreclosure on your record some employers will reject your application immediately regardless if you are the best man or woman for the job and position. How Long Can You Stay In Your House After Foreclosure? This differs state to state but in some instances it can be as long as four months to one year until the individual is forced to vacate indefinitely. This procedure in New York State falls under two categories which is judicial foreclosure and non-judicial foreclosure. Judicial Foreclosure – Is when the lender filed a complaint against the borrower and obtain an order of sale from the court.Non Judicial Foreclosure – Lender not required to file a complaint in court, is given authority to sell and foreclose quickly. Which Of These 12 Foreclosure Alternatives Did You Skip Over That Can Hurt You? * Refinancing is a challenge for the borrower having limited equity and poor credit.* Reinstatement can make a loan current by paying the amounts due. * Short term forbearance allows for the termination of up to three payments or a decreased amount until six months. When the forbearance time period is over, the seller must comply on a longer repayment plan to catch up on those payments missed. * Long term forbearance is very similar to short term forbearance with a few exceptions. This is designed for severe neglect and permits a reduced in payment for four to twelve months * Special Forbearance can schedule a repayment plan depending on the vendor’s financial portfolio. There may be a temporary decrease or postponement of the seller’s payments. The individual must have experienced a current unintentional cutback in income or living expenses have increased. Documentation must be submitted as proof. * Deed in Lieu vs short sale – When a seller may be able to willingly return their residence to the lender. This may not salvage the home, but will assist their probability of obtaining another mortgage loan in the future. The owner can qualify under these guidelines: if they have not been paying and do not qualify for any other options, their attempt at selling the dwelling prior foreclosure failed, and they do not have another FHA (Federal Housing Administration) mortgage in default. * Cash Sale relies on the owner’s equity. This occurs when the seller gets cashed out on the residence and the whole thing is paid in full. The property needs to be given at a discounted amount so it can be a worthwhile investment. * Repayment combines past due amounts with regular monthly payments* Modification is when the owner and the mortgage company will have a written agreement which modifies some of the stipulations of the note * Another strategy to stop foreclosure is to make an attempt to come up with a portion of the money to apply towards the shortage which is called the contribution figure or the good faith payment. The monetary amount is between thirty five to fifty percent of the total amount that’s needed to bring the loan up to date. This tip proves to the lender that you’re interested in having the loan in good standing. 13 Ways You Can Get Foreclosure Help * Consult with a foreclosure defense attorney* Real estate investors who buy houses for cash* Special Program Options… Other Short Sale Alternatives & Insider Options Experts don’t want you to know about Pandel Enterprises 1-718-577-2782* U.S. Department of Housing and Urban Development (HUD) Telephone: 1-800-569-4287* Neighbor Works Spanish or English 1-888-995-HOPE* National Community Reinvestment Coalition (NCRC) 202-628-8866* National Council of LaRaza (NCLR) NCLR may be the biggest national Hispanic civil privileges and advocacy organization within the U.S. 202-785-1670* Neighborhood Assistance Corporation of America (NACA) 1-888-302-NACA* Fannie Mae’s HomeStay Program 1-877-722-6757* Freddie Mac ” Don’t Borrow Trouble Program “* Nation’s Association of Consumer Advocates 1-202-452-1989* Home Ownership Preservation Foundation* Project Lifeline Initiative Contact Your Lender To See If They Offer It. There’s a wealth of information here and no one is expected to know everything overnight. These processes are complex, but with the appropriate real estate professionals working on your side, this anxiety provoking area should be clearer to comprehend and help answer your question on why should I short sale my house.Are you thinking… should i short sale my house?
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