Throughout the process, the owner focuses on convincing the lender that a short sale is the best option. The owner must: Overall, there are a lot of misunderstandings around short selling. But a common misunderstanding is that lenders only want to get rid of the property and will move quickly to get as much money back as possible. 4 These options have tax implications, some of which are under the Mortgage Debt Relief Act 2007 in P.L. 110-343 (10.3.08). Up to $2 million of qualified mortgages, cancelled from January 1 to December 31, 2012 at the principal residence of the insured, will not be considered income to the taxpayer, subject to various restrictions. The limit is $1 million for a married person who files a separate return. Reduced mortgage debts (attributed) as a result of restructurings such as training or short selling, as well as mortgage debts cancelled as part of a forced execution, are all eligible for tax exclusion. The law applies only to principal residences, not holiday homes or investment properties.
In addition, the exclusion applies only to “acquisition debt,” generally defined as debt originally used for the construction, purchase or improvement of a property. Although short selling tends to minimize the difference between the proceeds owed and the income transferred to the lender, minimizing the taxable income potentially owed to the seller, the possibility remains. Sellers should be advised to consult with tax or legal advisors on the impact of the new law and other tax provisions on their living conditions. B. Pricing: It doesn`t make sense to start with an abnormally high price in a short selling configuration. Some sellers will require you to rent the property at a break-even price for them first. Use your best judgment and follow your broker`s rules and procedures, but be aware that a price that doesn`t attract offers will hurt your seller. If the partition clock is already running, time may be up. House prices at a realistic market price today. Adjust the price quickly if you don`t see any activity or if you don`t have offers. For short selling to work, you need to make an offer to the lender quickly.
A lender is not likely to authorize a short sale if there is enough equity in the property to sell it and at least break it, even if it is closed instead. The owner must be turned upside down in her loan, that is, she owes more than the fair value of the house.