What is a Short Sale?
In Arizona, a homeowner is “short” when they owe more on a property than the proceeds from a sale will generate. If a homeowner is short even one penny then authorization from the 3rd party (lien holder) is required before a lien release will be issued.
In Arizona, a Short Sale takes place when a buyer and seller have entered into a purchase agreement of real estate and a 3rd party (lien holder(s)) has agreed to receive less than the amount owed to them as satisfaction of the debt.
Why Would a Lender Accept a Short Sale?
A short sale offers a lender the opportunity to settle a debt with a homeowner and avoid foreclosure. Once a lender forecloses the property becomes what is called an REO (Real Estate Owned). Banks are not in the business of owning real estate and therefore sell these REO’s on the market to recoup as much of the money they loaned on the property as possible.
The expenses associated with an REO can be enormous. Common expenses include taxes, insurance, utilities, landscaping, pool maintenance, maid service, and HOA dues. The cost of these items can range from $900-$1500 for an average $150,000, four bedroom home.
Short Sale Myths
Myth 1: Any homeowner who doesn’t want to pay their mortgage anymore can just liquidate via short sale
Truth: Only homeowners with qualifying hardships will successfully get lender approval for a short sale
Myth 2: Any real estate agent is qualified to process a short sale
Truth: Arizona Short Sale transactions are special kinds of transactions and you should trust your financial future with an agent who has received specialized training. Anything less could result in foreclosure for the homeowner. Brandon Meryhew is a CDPE (Certified Distressed Property Expert).
Myth 3: A short sale will have the same effect on my credit as a foreclosure
Truth: A foreclosure will affect credit scores for 3 years or more and is REQUIRED to be disclosed on ALL future Form 1003 mortgage applications. A short sale’s effect can last as little as 12-18 months and there are no questions related to short sales on Form 1003. Contact me for a full brochure on the consequences of Short Sale vs. Foreclosure. It will open your eyes!
Myth 4: A short sale will create a taxable event and the lender will send me a 1099 at tax time.
Truth: The Mortgage Forgiveness Debt Relief Act provides relief for qualifying homeowners who have defaulted on a loan for a principal residence from 2007 to 2012. See full details at http://www.irs.gov/individuals/article/0,,id=179414,00.html
For questions or more information regarding Arizona Short Sales, send me an email.