Short Sales in Louisville Kentucky are done when the property is worth less than the debt owed on it. You are offering the bank less than what is owed so someone can purchase it. A relative or insider may be offering to buy your home for more than what would be obtained at auction. Personally, I see very little advantage to the homeowner doing a short sale unless you attempt to keep the home and a relative is purchasing the property. Short sales require substantial proof that you are offering the lender more than what they will get in foreclosure.
A short sale forces you to do all of the work of selling the home for the mortgage company. Your credit receives virtually the same damage whether you short sale or have a foreclosure. In a short sale, you do all the work. You submit a fair offer to the bank. In the end, they refuse it or take months to accept it. Short sales are an effective tool to keep the home by eventually buying it back from the purchaser. This is called a white knight purchaser.
The Issues that Complicate or Improve a Short Sale in Louisville Kentucky
The primary concern of the bank is what brings them the most profit. They resist the homeowner not keeping the property. They prefer to offer mortgage modifications that temporarily lower an interest rate. If the homeowner offers a short sale you must provide proof the short sale is the highest price obtainable.
If there is a second mortgage you have to make two banks accept your offer. When two mortgages occur, the issue is that there is no advantage to the first mortgage to share less than what the home brings at foreclosure with the second mortgage company. The second mortgage company often refuses to accept a short sale unless they receive substantially more than a foreclosure brings them.
The problem is always in convincing the lenders to accept a better deal than what they get at a foreclosure sale. Often filing bankruptcy still has to be done to prove this point. Then, it seems that the homeowner files bankruptcy and lists the property in bankruptcy as abandoned, the mortgage company more easily accepts a short sale. Filing bankruptcy seems to convince the lender that the homeowner will no longer retain the home. Then, the lender has to accept the time and expense of foreclosure or the immediate and better offer of a short sale. The problem for the lender is the home continues to report as a bad debt until it there is resolution. This also costs the lender higher rates for the money it borrows to lend.
Advantages and Disadvantages to Short Sales
A short sale can take up to a year for approval. It also often gets you out of the house sooner than if you just stay in it. Additionally, a short sale might still leave you owing a deficiency. It also definitely leaves you with an income tax problem for any deficiency.
The internal revenue service rules and regulations require the mortgage company to submit the 1099-c for any loss. Regardless of any agreement, you have with the mortgage company or what they tell you, you can’t get around the tax rules and regulations of the IRS. The reason for doing a short sale is to have a slightly better credit file. The advantage is very slight. Many people are sold on the idea they will avoid the 1099 problem. However, short sales do not avoid the 1099 tax problem. Only catching up on the mortgage or bankruptcy keeps you from tax liability in a foreclosure.
Still, there are situations where a short sale to a relative or insider allows you to stay in the property. Many of my clients simply let the home go back in foreclosure living in it until the sale date and simply file bankruptcy to avoid the tax problem and any possible deficiency.
Are you facing foreclosure? Contact my office right away to start the conversation. Nick C. Thompson, Attorney: 502-625-0905