Top Five Short Sale Myths
There are a lot of rumors, supposed strategies and endless classes teaching “short sales”. Here are the top five short sale “tactics” worth debunking:
1. You should put a quick closing on your contract to get a faster approval. False. Many short sale lenders have up to 70,000 files they are processing at any one time, and up to 600 files per negotiator. Threatening that a buyer will “walk” or that you will pull a contract because of a contract closing date will generally have no effect on getting the lender to respond more quickly.
2. You should send in multiple offers to the short sale lender. False. Most large lenders only want one signed contract. Reference Countrywide’s short sale package stating: “If there is more than one purchase contract, the seller may only submit ONE offer to Countrywide for review.”
3. You can demand the lender not issue a 1099-C on the cancelled debt. False. The lender is required by law to report the forgiven debt on a short sale as income. You may not be liable to pay taxes on this debt, however, if you qualify under the IRS insolvency rule or the Mortgage Forgiveness Debt Relief Act.
4. You can negotiate with the lender to not report the short sale as “settled” to the credit bureaus. False. Again, most large lenders have standard approvals and reporting guidelines they will not vary, even if you hire an attorney. With a short sale, however, you might be able to borrow again in two years, versus four to seven years with a foreclosure or deed-in-lieu of foreclosure.
5. If your lender knows you are trying to do a short sale, they will stop the foreclosure process. False. Lenders cannot rely on a successful short sale transaction or even on a property receiving an offer. Stopping their collection and foreclosure efforts would weaken their position and potentially cause further financial loss. You may, however, be able to postpone a foreclosure sale date if you submit a reasonable short sale offer for consideration.
If you steer away from razzle-dazzle and tricky tactics, and rely on common sense, you will find your short sales a success.