What is a Chandler Short Sale?

Have you heard the term "underwater" in reference to your home?  Lets try explain what this means with a simple example:

You owe $300,000 to the bank.  If you sell your home, you will net only $200,000.  Therefore, you ALONE cannot decide to sell your home.  You need the bank's approval in the form of a short sale transaction!  They must agree to eat the difference of $100,000.  Effectively, a prospective buyer may put an offer on your home for much less than the amount you currently owe - and have this offer accepted by the lender!  Why would the bank consider this?  Simply put, performing a short sale almost always costs the bank LESS than taking the property back via foreclosure.  Thus - you should consider a Chandler Short Sale when the value of your property is lower than the amount you owe.  A bank will typically be "receptive" to a Chandler Short Sale when a homeowner is behind on their payments.  However, there are instances where the bank will still consider a Chandler Short Sale even when your payments are up to date.

What are Your Choices?

If you need or want to sell, or remove yourself from an ownership position of your Chandler Home, you effectively have three options.

• Sell it on our own - this may mean you will have to bring cash to the table for a "normal" transaction, especially if you owe more than the property is worth.
• Permit the home to go into foreclosure - this may be the easiest but also will likely have the most significant impact on you in the future (credit hit, ability to find employment, inability to purchase a home for 7+ years, etc).
• Perform a Chandler Short Sale - reduced credit impact, the ability to purchase another home again immediately (select cases) and an overall increase in your net worth! 

Why Would the Bank Undertake a Short Sale?

In the vast majority of cases, banks make more money through a Chandler Short Sale than via a Chandler Foreclosure.  Why is this?  There are many, many fees that the bank has to pay as part of the Chandler Foreclosure process.  There are potential court fees, attorney fees, costs to repair damage to the property causes by unhappy (former) owners, a lack of cash inflow in the form of mortgage payments, etc.

Banks are also not property managers.  With REO properties, banks must maintain the properties, hire Realtors to sell the property, and in general hold onto an Asset that is LOSING money as opposed to GAINING money.  In summary, a Chandler Short Sale is typically favorable to the bank as compared to a Chandler Foreclosure.

There are Multiple Steps in a Chandler Short Sale - What are they?

1. Initially you need to demonstrate some type of a hardship.  Except in rare cases, the bank will want proof of your hardship prior to approving a Chandler Short Sale.  They will want proof in the form of a hardship letter, paystubs, a financial statement and a hardship letter.
2. Second, you need to verify (typically with the assistance of a Short Sale Realtor) that the property is indeed worth less than what you owe.  If the market value is less than the loan balance(s) then you can move on to the next step.
3. Third, you need to decide who you want to partner with and have represent you during the Chandler Short Sale transaction.  Unfortunately, not all Realtors are versed in the nuances of Chandler Short Sales.  Yet other groups will charge exorbitant fees for minimal results.  Likely you will want an experienced Chandler Short Sale Realtor who knows the ins and the outs to help you get your home sold!

Once you go through these "preliminary" steps, "we" must go about with the following steps to successfully execute a short sale:

• List the property for sale
• Procure an offer(s).  (We submit one offer and one offer only to the bank and hold all others in reserve)
• Submit the "Package" (see next section) to the bank.
• Verify "Package" received at the bank.
• Ensure bank orders and completes Brokers Price Opinion (BPO).
• Bank assigns case to a negotiator - often "approval", if it gets to this point, occurs within ~ 10% of the BPO

Hardship Letter

There are numerous reasons for which you might be interested in undertaking a Chandler Short Sale including job loss, medical reasons, etc.  Typically, you must "prove" your financial hardship to your bank before they will consider your Short Sale request.  Your Short Sale Hardship Letter should be unique to your own circumstance(s) and concise.  Below see some common financial hardships:

• Unemployment
• Loss of Income
• Divorce/Separation
• Health Concerns
• Job Transfer
• Payment Increase (adjustable mortgage)

Once you have identified the source(s) of your hardship, you will want to draft your Short Sale Hardship Letter.  Some general considerations as you draft your letter:

• Include all names on the loan or loans and include all loan numbers.
• Explain the particular hardship you have suffered and its impact on your financial situation.
• Explain how you have tried to stay current on your mortgage by cutting back in other areas.
• Request that the lender work with your Chandler Short Sale Realtor to sell your home.
• Explain that this is a last resort, that you would like to keep your home, but are unable to, wish to avoid foreclosure and will not be receiving any monies from the sale of your home.

Short Sale Package

The Short Sale Package for your Chandler Short Sale contains ALL the information that the lender will require in order to convince THEM that you cannot afford to keep the home and that that the Chandler Short Sale is preferable, in THEIR EYES, to the Chandler Foreclosure.  See the list of items typically included in the Short Sale Package below:

• Hardship Letter (see above)
• Two year's tax returns (1040 main pages only)
• Two most recent bank statements
• Two most recent paystubs
• Letter of Authorization (permitting your Realtor to speak on your behalf)
• Financial Statement document
• Estimated Net/Proceeds sheet (HUD-1)
• A fully executed Purchase Contract

The BPO

As mentioned above, upon receipt of the entire package, the bank will perform its own verification of the "value" of the property.  It does this in the form of the BPO - Broker's Price Opinion.  A Realtor hired by the bank will go to the property and give his/her estimate as to the properties value in the current market.  It will contain information such as recent comparable sales in the neighborhood to give a fair estimate of the current market value.  Should you have multiple loans on the property, each lender should be expected to complete their own BPO.  Often, though not always, banks will approve short sale offers that are within ~ +/- 10% of the BPO amount.  Hence it is imperative that the listing Short Sale Realtor attempt to influence the BPO value.  This is critical!!

Chandler Short Sale - Credit Consequences?

The impact upon your credit from a Chandler Short Sale differs from that of a Chandler Foreclosure.  Though there are no 100% accurate, concrete statements that suggest a short sale will impact your credit by X pts and a foreclosure by Y pts, there are some generalities:

Short Sale - A Chandler Short Sale typically shows up in your credit history as either a "pre-foreclosure in redemption", "a settlement for less than owed" or a "settlement.  Often there is a credit hit of 100-200 points as most short sales involve some number of "lates" in your payment history as payment delinquency is usually required to proceed.  However, your credit CAN be repaired in a relatively short time frame allowing a purchase of a home within 2 years and earlier in some cases.

Foreclosure - A foreclosure can take between seven and ten years to be removed from your credit history.  The impact on your credit score can be 200-400 points.  There are cases of employers not hiring individuals with foreclosures in their records.

A Chandler Short Sale is typically considered a preferred alternative over a Chandler Foreclosure for the aforementioned reasons.

Chandler Short Sale - Tax Consequences?

Upon successful execution of a Chandler Short Sale - it is certainly plausible that there will be tax consequences.  As a caveat - WE ARE NOT TAX PROFESSIONALS.  Please discuss your potential tax issues and questions with an attorney or CPA.  In general, if a lender forgives a debt, as is typically the case in a Chandler Short Sale, that debt is taxable and referred to as "debt discharge income".  Your bank, at their discretion, can submit a Form 1099-C: Cancellation of Debt to the IRS.  However, H.R. 1876: The Mortgage Forgiveness Debt Relief Act of 2007 would eliminate the tax on any forgiven mortgage debt for a PRINCIPAL RESIDENCE.  For more info, please go to http://www.whitehouse.gov/news/releases/2007/12/20071220-6.html.

This may leave various investors wondering whether they should proceed with a short sale.  There is a potential loophole.  Upon receipt of a 1099-C from your bank, you must report the amount of the cancelled debt as income to the IRS.  The case of insolvency, however, is one where cancelled debt might not have to be reported as income where insolvency would be defined as having your total debts exceed your total assets.  If this is your case, you will need (typically) to fill out IRS Form 982: Reduction of Tax Attributes Due to Discharge of Indebtedness http://www.irs.gov/pub/irs-pdf/f982.pdf

Once again - for all tax-related questions, please contact an attorney, CPA or other tax professional.