What is a short sale? - Posted by Chris

Real Estate Investing Real Estate Law
#1

Posted by Jim IL on November 18, 2000 at 18:53:26:

Chris,
A short sale is when the seller, and the lender who holds the note on the home agree to allow the home to be sold for less than what is owed on it.
The lender obviously has to agree to this, because they are taking a loss.
But, many times the lender will agree to a short sale rather than go thru a lengthy and sometimes costly foreclosure.
I do know that getting this done is not easy, especially with goverment insured loans.
But, it does happen sometimes.
You’ll have better luck with this technique if the note is not performing. (it is behind on payments.)

HTH,
Jim IL

#2

What is a short sale? - Posted by Chris

Posted by Chris on November 18, 2000 at 17:53:13:

What is a short sale?

#3

A short sale can be more complicated… - Posted by David Krulac

Posted by David Krulac on November 19, 2000 at 08:47:04:

in that there are multiple mortgages, leins, and judgements on the property. Technically if any judgement or lein holder forgives OR moves the debt off the subject property there is a short sale.
The lein holder can get a partial payment and move the remaining debt to another property or even to a no collateral position. Why would they do that? For example seller owes $15,000 on second mortgage to finance company. If the seller walks away the second mortgage position may be so tenous that they would end up with ZERO. So a partial payment of $7,500 and release of the mortgage on the property but making the remainign debt uncollaterized makes sence. A bird in the hand…

#4

Re: What is a short sale? - Posted by chris

Posted by chris on November 18, 2000 at 21:53:58:

Chris-

There are some investors on this board who specialize in short sales and I hope they will also drop by. I just wanted to add that a short sale is not an easy way out for a home owner. This is the way the IRS looks at the issue:

Foreclosure or repossession. If your home was foreclosed on or repossessed, you have a sale.

Form 1099-A and Form 1099-C. Generally, you will receive Form 1099-A, Acquisition or Abandonment of Secured Property, from your lender. This form will have the information you need to determine the amount of your gain or loss and whether you have any ordinary income from cancellation of debt. If your debt is canceled, you may receive Form 1099-C, Cancellation of Debt.

Abandonment. If you abandon your home, you may have ordinary income. If the abandoned home secures a debt for which you are personally liable and the debt is canceled, you have ordinary income equal to the amount of the canceled debt. If the home is foreclosed on or repossessed, you may also have a gain or loss. See Foreclosure or repossession, above. Get Publication 523 for more information.