Houston Texas Real Estate Short Sale Tips
A short sale in real estate occurs when the outstanding loans against a property are greater than what the property can be sold for. This typically happens when a homeowner is unable to continue making his mortgage payments, and is unable to sell the property for enough to pay off the home loan. Short sales are a way for homeowners to avoid foreclosure on their homes and still be able to pay off their loan by settling with lender. To complete the short sale, the homeowner must have permission from the lender.
Here are a few tips when considering to make purchase property in short sale status, or if you are attempting to sell your home in a short sale transaction.
Short Sale Buyer TipFor a buyer purchasing a short sale, expect the process to be much longer than a traditional home purchase, as it might take months to complete. Do not be surprised if the short sale does not close escrow, even if the homeowner agrees to the purchase and you have funds. After the homeowner accepts the buyer’s offer, the offer goes to the lender, who may refuse, or make a counter offer. When making an offer on a short sale, the buyer typically needs proof of funds or loan approval, and should not expect to be able to make demands of the seller in regards to repairs and additional discounts. |
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If you are the seller in a short sale, discover if the lender might file a deficiency judgment after the sale. Even if the lender agrees to proceed with the short sale, this does not guarantee there will not be a deficiency judgment filed after a few years. For example, if the lender agrees to allow you to sell your house for $100,000, when you actually owe the bank $150,000, in a couple of years you may receive a deficiency judgment declaring you owe $50,000, plus possible interest and penalties.
Mortgage Debt ReliefWhen a lender forgives a debt outside of bankruptcy, the borrower sometimes discovers she owes income tax on the forgiven loan amount. If the lender agrees to write off $50,000, the IRS may ask for income tax on $50,000. The Mortgage Debt Relief Act of 2007 helps protect some property owners from owing taxes on forgiven amounts, in some short sale scenarios. |
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Houston Short Sale Tips & Warnings
- Closing costs will include title and escrow fees (if the seller is responsible for any portion of them, which will depend on your county), attorney fees, a portion of unpaid property taxes, re-conveyance fees, notary fees, delivery fees, documentary fees and/or transfer fees.
- If you sell the property without the assistance of a real estate broker, you will save the amount of the commission and have more to apply toward paying off your loan.
- If you feel more secure having a real estate broker handle the transaction, consider using a discount broker to market your property. You could also try to negotiate the sales commission with your broker.
- Remember that the amount on your monthly loan statement does not include interest. Interest is accrued until the date a loan is paid off, so you may have as much as 30 days of interest on top of the balance owing, and you’ll need to include this interest in the total payoff amount.
- If a property is sold under a short sale, the lender may require the buyer to make up the difference, either through a personal obligation or a collection.
- The IRS often gets involved with short sales, because they are seen as a relief of debt and may be treated as income. Check with your accountant.