Short sale and foreclosure FAQ
This portion of our short sale / foreclosure article series may have answers that vary from state to state. As always, get competent legal and/or tax advice if you're dealing with a short sale or foreclosure situation!
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Q: Can the seller receive any funds from the sale of the home in a short sale?
A: Almost certainly no. Generally the lender will not allow the seller to receive any funds from the sale. If a seller tries to receive any funds through some sort of a "side door" they could be setting themselves up for criminal prosecution.
Q: How do I get the lender(s) to approve a short sale?
A: There really isn't any sort of pressure point in most cases that will move a bank along any faster than they want to go. Most lenders are dealing with thousands upon thousands of short sale requests. Unfortunately your short sale is just another being processed. What CAN be done is to make sure your request is complete and everything needed by the lender is submitted in a timely fashion. This is the number one thing that can be done.
Q: I heard the IRS gets involved with short sales and I may be taxed. Is this true?
A: Yes, the IRS will likely receive a 1099-C on any loss written off by the lender after a short sale or foreclosure. What this means to you (and whether there may be tax due) depends on the type of property and your situation. See part 2 - IRS consequences of short sale / foreclosure.
Other Articles
Q: There are two loans on the property. Can I still do a short sale?
A: Yes, but it becomes more difficult. Both lenders (in the case of two) will have to approve the short sale. Neither lender wants the other to receive funds that could have been theirs. Some states have laws that might put a little more pressure on the banks to come to agreement however (anti-deficiency laws).
Q: What happens if the bank does NOT approve the short sale?
A: Sometimes the bank will come back with an amount they WILL accept. Sometimes they refuse entirely. The seller and the buyer (or a new buyer) can go back to the bank again and it may go a little more quickly the second time but there's no guarantee. If they refuse then the sale won't happen as the loan(s) will not be paid off.
Q: Will the foreclosure auction or trustee's sale get postponed if a short sale is "in the works"?
A: Perhaps. This needs to be brought up however. It's not automatic.
Q: If the lender approves, what's next?
A: Once approved the sale will take place fairly near a "normal" fashion. There will likely be timeframes that need adhered to however. Everyone should be ready to move quickly. There are also considerations to the lender's approval itself. Is moving forward with the short sale in the seller's best interest? Not always.
In our next to last part of this series (part 5) we will discuss the remaining serious issue in short sales and foreclosures, that being damage to credit. -back to tutorial index-
