Top 10 Short Sale Questions

What is a real estate short sale?

A real estate short sale is a form of agreement between the seller of a home and their lender, allowing the home to be sold for less than the existing loan balance outstanding. Charleston short sales make up approximately 25% of the current inventory under contract, so knowing the Charleston short sale market is important. 

How likely is it that my lender will accept less than they are due?

Depending on the actual circumstance, you will find that lenders are more open minded than you may think. In fact, they are as aware of the economy as anyone else and look closely at the alternatives. Of course, your financial picture and if you have a hardship are important factors to the equation. Most Charleston short sales are not pre-approved short sales, so the process of getting a Charleston Short sale approved can take a bit of time. Patience is very important, for both the buyer and the seller. 

What documents are necessary to proceed with a Charleston short sale?

The individual documents necessary to proceed with the Charleston short sale will depend on the lender. Typically the lender will require a hardship letter detailing the circumstances behind the short sale. A signed, valid purchase and sales contract, preliminary HUD-1 settlement statement and a preliminary estimate of proceeds to the lender. There may be additional requests for more detailed information on the financial condition of the seller, i.e.; paycheck stubs, bank statements, a personal financial statement and monthly budget assessment, amongst other things. This can be a slightly cumbersome process, but keep in mind most of the seller's work is upfront and is absolutely necessary to getting a Charleston short sale approved. 

Will the seller’s credit rating be affected if they allow a short sale on their property to occur?

This is one of the most common questions we encounter when being asked to handle Charleston short sales. While it is up to the individual lender to decide what to report, what often happens is the loan will report as "paid" on their credit report. While that good news the bad news is that there will likely be a reference that says "settled for less than originally owed" or something similar. It is certainly more advantageous to have the Charleston short sale referenced than to have a foreclosure on their credit report. Additionally, your actual credit score is only affected by about 100 to 150 points unless you miss payments.

Will a lender allow the seller to make a profit on a Charleston short sale?

By the nature of the transaction, the seller is not going to make a profit on the short sale. They may have extracted equity from a previous refinance of the home, but their current loan balance will be higher than the selling price of the home. This is the case with all Charleston, SC short sales. If the seller makes money, then it is not technically a short sale.  

If a seller is in bankruptcy, will that affect the short sale of the property?

Absolutely, as most lender would not consider a Charleston short sale if the homeowner is in the middle of a bankruptcy proceeding. Negotiating a short sale between the parties is considered a collection activity and such a negotiation is prohibited in bankruptcy.

Will the bank or lender require an appraisal on the home in a short sale?

Most lenders will require that a full appraisal be submitted in the short sale package. Some may only require a BPO or brokers price opinion. The lender will need some formal assessment of the value of the home in order to make a decision as to accept or reject the short sale offer. If you are considering selling your property as a Charleston short sale, please make sure to ask us about how we like to address BPO's and the pricing of the property. This is a crucial step in getting your Charleston short sale approved and we are experts in this field. 

Are there tax implications with a short sale?

Much like the issue of credit reporting, the circumstances are individual to the lender. As a short sale represents a loss for the lender, they can report the amount lost debt forgiveness to the seller. If a formal tax form 1099 is filed, the seller may be responsible for paying taxes on the amount of debt forgiveness. Keep in mind that if you are selling your property as a Charleston, SC short sale and if it is your primary residence, that the lender will report the sale via a 1099. The good news is that you most likely will be exempt from paying taxes on the 1099 because the Obama administration passed a law making primary residences exempt from Charleston short sale taxation. 

Why would a lender allow a Charleston short sale to occur?

Quite simply, it may benefit all the parties involved in the transaction. The seller is relieved of the home they cannot afford. A costly foreclosure proceeding by the lender is avoided and the buyer purchases the home at an attractive price. Charleston short sales are accepted more often than not because the lender looks at the transaction as a business decision and realize that they may not be able to obtain more money for the property if they owned it themselves through a foreclosure.

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