Virginia Short Sale

If you find yourself in a position where the loan on your property is more than you can reasonably expect to get if you sold it, you may be a candidate for a short sale.   In a short sale, the lender agrees to take a reduced amount and release their lien on the property for a “short” payoff. 

Short sales benefit the seller because, you get out from under a loan and house you cannot afford.  It is an attractive alternative to foreclosure because you control the process and can work to get the highest amount possible thereby reducing any future liability.  A short sale is much less damaging to your credit and you could qualify for a new loan in 2 years or less versus being frozen out of the market for 7-10 years by a foreclosure. 

Short sales have become quite common as lenders realize they will net more from an orderly sale of the property than from a foreclosure.  Short sale is an alternative to foreclosure – it is not a gift or a right.  If your property is presently in foreclosure, it may not be too late.  Many lenders will postpone a foreclosure sale if they believe you are making a good-faith attempt to short sell the property.  However, there are no guarantees and some lenders will not delay foreclosing for any reason.

To qualify for a short sale, you must:

  • Show a hardship that gives you a reason to sell and prevents you from paying the entire loan
  • Sell the property in a bone fide arms-length transaction (not to a relative or family member)
  • Sell for a fair price
  • Apply and qualify

Here are the steps to take:

  • Contact your lender to get  “the rules.”  “The rules” change so keep in touch and make sure the lender knows what you are doing.
  • Offer the property for sale at fair market value.  Be ready to support that value by showing comparable sales in the neighborhood.  If the property doesn’t sell, you can reduce the price but be prepared to prove to the lender that your reductions are reasonable.  
  • Gather together the information for the short sale package including the hardship letter explaining why you need to sell the property in a short sale, two months bank statements, two recent pay stubs and last two years tax returns. 
  • When you receive an offer, contact your lender to begin the approval process.

Once the short sale package has been submitted to your lender, approval can take anywhere from 30 days to 12 months.  Lately,  approvals have been coming quicker as lenders realize there is no advantage to dragging out the ordeal.

Your continuing liability

A short sale is not without consequences.  You are legally liable for any deficiency.  In some cases, the lender will ask you to contribute money to closing or sign a note for part or all of the deficiency.  In some cases, the lender will commit to forgiving the deficiency.  In many cases, the lender will say nothing and, in so doing, preserve their right to collect additional money in the future.  Unfortunately, there is no way to force their hand on this and many short sales go through without a definitive answer.

If the lender forgives the debt, it is treated as income for tax purposes.  You will receive a form 1099 at the end of the year.  However if the property was your principal residence, or if you are insolvent at the time of the short sale, a short sale deficiency may not be considered taxable income.  Consult with your tax advisor for details.

How we can help

The Buck Law Firm has extensive experience with short sales and we are ready to assist you.  We will prepare the preliminary settlement statements your lender will require as part of the short sale package and conduct the closing.