Fort Lauderdale Real Estate Defense

Short Sales / Short Pay

During the past couple of years, foreclosures have become much more common throughout the United States, including Dade, Broward and Palm Beach Counties. During this period, the term "short sale" has been used more and more often. Short sales are extremely important because, when done properly, they have the potential of allowing a property owner to avoid bankruptcy and foreclosure, even if the property owner owes more to the lender than the property is worth. The purpose of this page is to provide some basic information about short sales. For specific information about your situation, please contact our office to set up a consultation.

Defaulting on mortgage payments can be a difficult situation. Many people find themselves falling into default, or are already in default, and don't realize that there are options available before the bank takes the house away. A short sale is an excellent way to avoid foreclosure and can offer time and protection, as long as it is done properly by a qualified attorney.

A Short Sale or Short Pay is when the lender agrees to accept a sales price of fair market value for your property despite the loan or loans totaling more than what the property is worth. In this scenario, the lender takes a loss on the property and writes off the difference between what was owed on the property and the final real estate short sales price. In most cases, the lender takes less than what is owed on the property to fully satisfy the loan.

Why would a consumer/borrower want to do a Short Sale?
Short Sales are a benefit to consumers because they stop mortgage foreclosure and prevent the lender from suing for deficiency. Deficiency is the difference between what the lender would have received under the contract and what the property finally sells for. This shortfall can often be more than $100,000.
By entering into a voluntary agreement with the lender, you ultimately stop foreclosure and your credit report does not merit a FORECLOSURE entry. This puts you in a much better position to qualify to buy another property in the future.
Through our negotiation process, the lender agrees to forego suing you for any monies which they write off associated with the Short Sale transaction.
A Short Sale transaction also provides peace of mind and predictability because you know exactly when the sale will close, and thus when you will need to vacate the property. There's no risk that sheriff's deputies will come to your door one morning to evict you.

Why would I hire a real estate attorney to do a Short Sale for me?
Negotiating a Short Sale is a difficult process, generally because the lender will require certain documents and information, but too much information or documents in the wrong format can completely destroy a transaction. Specifically, the lender will require documents demonstrating the property value, and then will verify such value with a broker’s price opinion or “BPO.”
Additionally, the lender will ask for financial information about the borrower. The borrower must now convince the bank that he/she is insolvent and simply cannot make the payment going forward. Think of it as a backwards loan application. It is important to give the lender precisely what they want at this stage without lying (often including bank statements and tax returns), but also paint a grim picture of the borrowers financial circumstances.
This stage is the most sensitive because the borrower must prove they do not NOW have the income to make the payments, but at the same time the borrower must be careful not to implicate themselves in mortgage fraud from when they applied for the loan and “proved” to the lender they DID have the income to make the payments. It is critical to be properly represented through this process by a qualified Short Sale attorney…for your own protection!
We believe that using an attorney with experience in the short sale process is important. If you are behind in your mortgage payments and in danger of losing your home, you need to get advice from the right people. Many people say to contact your lender as soon as you fall behind in your mortgage payments. Theoretically, that is good advice. However, anyone who has tried contacting the lender to work out a payment plan or to request a short sale, knows that this is not always practical. In addition, most real estate agents are not familiar with the details of how to get them approved. Lastly, there are many scam artists, investors and other unscrupulous individuals trying to make money from people who are in danger of losing their homes in a foreclosure. Consider using a local lawyer you trust, instead of phony counselors and short sale "specialists" who will take money upfront from you or powers of attorney in exchange for nothing that benefits you. If an investor or lender tells you not to waste money on your own attorney, think twice about working with that person.

When will a lender approve a short sale?
Although every lender has its own rules, a lender will generally approve a short sale request, if all of the following conditions are met:
• The price requested by the owner for the short sale must be fair and represent the true market value of the property. The lender will verify the market value by obtaining its own appraisal of the property, often referred to as a broker price opinion (BPO). In other words, although lenders do not want to foreclose a homeowner's property, they also will not take much less than the property is worth.
• The owner must not have the financial means to pay the balance of the mortgage. The mere fact that a property owner is behind in mortgage payments and that the property value is worth less than the mortgage owed, is not sufficient for a lender to agree to a short sale. The lender will need proof that the owner does not have the financial ability to pay the shortfall. If an owner has the means to pay the shortfall, the short sale will not be approved. A hardship letter or financial affidavit, as well as supporting financial information such as tax returns, pay stubs, W-2's and bank statements will all be required.
• Fully executed contract of sale showing a ready, willing and able buyer. The lender will not approve a short sale request unless the owner already has a buyer ready to purchase.
• None of the proceeds from the sale can go to the seller. If the owner wants to be able to sell the house without paying the lender in full, then the lender will not allow the buyer to receive any proceeds at closing.
• Proposed Closing Statement. The lender will want to see exactly how much it will net from the proposed short sale before it agrees to the short sale request. Your attorney will prepare this closing statement and include it in the package being sent to the lender. The lender will want to see that all of the closing costs are reasonable and that nobody is getting any funds that could be going toward the mortgage.

What are the benefits of a short sale?
If approved by the lender in a timely manner, the following are some of the benefits of a properly performed short sale in Connecticut:
• Avoid foreclosure. The negative effect on one's credit, auction signs, deficiency judgments and other negative consequences of foreclosure may be avoided by the successful negotiation of a short sale.
• Avoid bankruptcy. Even when a homeowner is behind in mortgage payments and owes the lender more than a house is worth, a successful short sale could allow a homeowner to avoid filing for bankruptcy.
• Eliminate the balance of any mortgage and home equity line of credit owed to the lender. Such forgiveness is not necessarily the case in a foreclosure.
• If the owner is insolvent, the forgiveness of debt is not usually considered a taxable event for the homeowner. However, a homeowner should always consider all tax implications before agreeing to a short sale.

Will a short sale application prevent or stop a foreclosure action?
Unfortunately, merely submitting a request for short sale approval will not stop a lender from starting or continuing with a foreclosure action. Therefore, if a foreclosure action has already been started, the homeowner should obtain legal representation while the short sale request is pending because the lender could obtain a judgment of foreclosure before it approves or denies the short sale request. Lenders take anywhere from two weeks to three months to make a decision on a short sale after all of the documentation is submitted. This process is unfair to the homeowner because the lender's attorney may obtain a judgment of foreclosure in less than two months. Therefore, it is important to work with an attorney in connection with a short sale, especially if a foreclosure action has already been commenced by the lender.

What are the tax implications of a Short Sale?
The tax situations of individual borrowers are different, but in general, any 1099 income generated by a Short Sale is usually offset by the loss the borrower took on a bad investment. Often, critics of Short Sales look only at the 1099 income without considering the benefit of the offsetting deduction for the loss on the property.
The bottom line on taxes is that the tax year in which the borrower completes the Short Sale is a complicated one, and it is critical to have a Certified Public Accountant prepare taxes for that year. It is easy to miss the deduction. Don't let it happen to you. The Law Offices of Krauss, Fishman and Gamm, P.A. are happy to refer clients to a qualified tax professional who can properly prepare such returns after a Short Sale.

At Krauss, Fishman & Gamm, P.A., we continually strive to provide the best service possible to our clients. We do this by never losing sight of what our clients' goals are and what we have to do to achieve them. Never settling for second best is the attitude we approach each case with and every case we take on is treated with compassionate and experienced representation.

Contact us about your Florida Short Sale / Short Pay matter and we will ensure we give you the highest level of client service possible. Feel free to call us toll free at (866)503-3336 or fill out our Quick Contact Form.  We look forward to hearing from you.