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10 Questions You Should Ask About Florida Short Sales

Over the last few years, our title company has orchestrated & closed over 750 short sales. In the course of our work with sellers, Realtors® and lenders, we have heard hundreds of questions related to short sales.

In order to help you prepare for your short sale, I have been blogging the most frequently asked questions we have received from people just like you who must sell their property, but who owe much more than the property is worth.

Let’s recap!

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Walk Away

This is the 10th tip of “10 Questions You Should Ask About Florida Short Sales” eBook, which is available as a FREE download.

This is ultimately the question you must reconcile when contemplating how to handle your distressed real estate. It will admittedly be a tough nut to crack.

As we have seen, there are lots of issues to consider. For example…

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stacks of paper

This is the 9th tip of “10 Questions You Should Ask About Florida Short Sales” eBook, which is available as a FREE download.

The tangibles are easy. Most lenders or short sale servicers require the same core set of documents and financials. So let’s start with the intangibles, the things every potential short seller must have in order to succeed.

  • Is my credit worthiness better off after a short sale than a foreclosure?
  • Or more bluntly, is the negative effect on my credit worthiness better than or worse than the cost of maintaining the payments and costs associated with owning the real property?
  • In the worst case scenario – where the lender retains the right to pursue me for any deficiency amounts – how might that affect my other assets?
  • What will be the tax consequences from the short sale and will those be any different than a foreclosure if I walk away?

The successful short seller in Florida will understand, will be committed, will be patient and will have proper expectations. To expand a bit on those intangibles, everyone pursuing a short sale must understand the issues as described above. With that understanding, the property owner should be able to decide whether the short sale is the right course of action for them. Once they have vetted the issues and made the decision to pursue the short sale, the successful short seller will be committed to the process and to participating fully in that process. This includes being quick to communicate and to provide the required documentation; and to updating expiring documents on a monthly basis.

The maxim that “patience is a virtue” is truest in short sales. Most short sales in Florida that fail are derailed by someone’s – seller’s, buyer’s,  realtors’, settlement agent’s, lender’s – impatience. Given what we know about short sales – that they can take time to complete, can be frustrating, and that most of the things that cause the most consternation are outside of our control – patience should come easy. But alas, emotion gets the better of some and they are not able to stay patient.

This is the death knell of short sales. Along those same lines, the successful short seller will have proper expectations about both the process and the outcome. On the one hand, one should expect to have to provide a wealth of documentation and to do so on a regular – monthly at least – basis. On the other hand, one should also have reconciled the possible worst case scenario as it relates to their short sale approval. For example, a seller should know the standard operating procedures of their lender(s) and should be committed to the process and the outcome even if that outcome is the worst case scenario. With emotions in check and these intangibles “in hand”, the short seller will succeed.

Now to the tangibles, which most every lender or servicer will demand. You will need at least the following documents (in addition to the real estate contract and related documents):

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Tax Consequences

This is the 8th tip of “10 Questions You Should Ask About Florida Short Sales” eBook, which is available as a FREE download.

If a Florida short sale lender cancels debt, there may indeed be tax consequences. The Internal Revenue Service treats cancelled debt as income. The 1099-C Form from the IRS gives a nutshell version of what cancelled debt means to a debtor and taxpayer in its “Instructions for Debtor”:

“If a Federal Government agency, certain agencies connected with the Federal Government, financial institution, credit union, or an organization having a significant trade or business of lending money (such as a finance or credit card company) cancels or forgives a debt you owe of more than $600 or more, this form [i.e., the 1099-C] must be provided to you. Generally, if you are an individual, you must include all canceled amounts, even if less than $600, on the “Other income” line of Form 1040 . . . .”

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Money

This is the 7th tip of “10 Questions You Should Ask About Florida Short Sales” eBook, which is available as a FREE download.

FL Short sale lenders sometimes require cash contributions from short sellers in exchange for the lender’s agreement to approve the sale. The amount of cash demanded varies considerably and, as with Promissory Note requirements, depends very much on the FL short seller’s ability to make that sort of contribution and the amount of the loss the lender is absorbing.10 Questions You Should Ask About Florida Short Sales

We have seen as little as $250 and as much as $75,000. These amounts are ordinarily negotiable to the extent that the lender will negotiate.

Much like with Promissory Note requests, demands for cash contributions are more common when mortgage insurance is involved. If your loan has mortgage insurance, you should prepare to deal with this type of request.

If you would like to learn more about FL short sales and don’t feel like waiting for the next post, simply click the eBook icon on the right and download your FREE copy today!

If you have additional questions, please feel free to contact us online or call us at 239-985-4142.

-Chris

Promissory note

This is the 6th tip of “10 Questions You Should Ask About Florida Short Sales” eBook, which is available as a FREE download.

Lenders occasionally require a new obligation in exchange for approving a Florida short sale. This new obligation is typically in the form of a promissory note.

Most promissory notes required after short sales are unsecured debt obligations – not unlike the note you signed for your original home loan but without the mortgage to secure the debt.

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Credit Card Picture

This is the 5th tip of “10 Questions You Should Ask About Florida Short Sales” eBook, which is available as a FREE download.

If you are considering a short sale, the effect of such an occurrence may not be the most pressing issue. It could be that unemployment, curtailment of income and other market forces have already wreaked havoc on your credit score.

Nonetheless, or if you are considering a short sale for more strategic reasons, it is important to understand that a short sale will affect your credit worthiness.

Credit scoring is very complex.

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This is the 4th tip of “10 Questions You Should Ask About Florida Short Sales” eBook, which is available as a FREE download.

It is not uncommon for homeowners and real estate professionals to consider a short sale impossible if there is more than one mortgage involved or junior liens (i.e., liens or judgments that affect the title to the property). This is not surprising for a number of reasons but is nonetheless a misconception.

As you may imagine, there are plenty of homeowners who have more than one mortgage on their properties. Perhaps they took out an equity line to pay for a child’s college or bought a property with 80/20 financing.

There are plenty of these situations and you may be in one and wonder rightfully whether or not you can successfully short sell your property on a second mortgage short sale.

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Naples Short Sales - Checking Figures

This is the 3rd tip of “10 Questions You Should Ask About Florida Short Sales” eBook, which is available as a FREE download.

This is a very frequent question, and its analysis is a bit complex because “cost” is such a broad term. Later in the eBook, we will look at Promissory Note requirements, cash contributions and association dues as potential “costs” of completing a Naples short sale. For this section, let’s simplify things a bit and look at standard transaction or closing costs and what you should expect to pay (or not pay).

With regard to ordinary closing costs, a short sale should cost you very little. Here’s why. In a short sale, the lender will agree to absorb many of the ordinary closing costs that are customarily the seller’s responsibility. In our experience with Florida short sales, lenders will usually agree to absorb at least the following closing costs:

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Short Sale Process - Old Mortgage Note

This is the 2nd tip of “10 Questions You Should Ask About Florida Short Sales” eBook, which is available as a FREE download.

In a nutshell, the lender’s right to pursue you for the deficiency after a short sale stems from your obligation to the lender under the Note. If you remember, when you took out your home loan (whether to refinance or to purchase), among the hundreds of pages were two very important documents:

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NOT LEGAL ADVICE: This information is not to be construed as legal advice. Legal advice must be tailored to the specific circumstances of each case. Every effort has been made to assure that this information is up-to-date as of the date of publication. It is not intended to be a full and exhaustive explanation of the law in any area. This information is not intended as legal advice and may not be used as legal advice. It should not be used to replace the advice of your own legal counsel.

Winged Foot Tite, LLC is not associated with the government, and our [short sale orchestration] service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan.