SHORT SALES IN VIRGINIA
by Craig E. Buck and Teri Anderson
Buck, Attorneys at Law
Copyright ©2015, Craig E. Buck and Teri Anderson Buck All Rights Reserved. No part of this material may be reproduced, transmitted or stored in any manner, in any form or by any means without the express written permission of the author. Permission is granted to reproduce and distribute this text in its entirety and, if by electronic means, with a link to URL www.virginiaclosings.com
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ABOUT THE AUTHORS: Craig E. Buck and Teri Anderson Buck are partners in The Buck Law Firm P.C., specializing in real estate, real estate closings and estate planning with offices at:
8280 Willow Oaks Corporate Dr. Suite 600 Fairfax, Va. 22031 (571) 765-6210
1109 Heatherstone Dr. Fredericksburg, Va. 22407 (540) 785-2122
E-Mail to Craig@BuckLawyer.com
Craig E. Buck was Chairman of the Northern Virginia Association of REALTORS Standard Forms Committee and is author of The Real Estate Contracts Handbook available on Amazon. He was named Affiliate of the Year by the Northern Virginia Association of REALTORS.
Teri Anderson Buck received an Affiliate of the Year Award from the Prince William Association of REALTORS.
SHORT SALES IN VIRGINIA
If you find yourself in a position where the loan on your property is more than you can reasonably expect to get if you sold it, you may be a candidate for a short sale. In a short sale, the lender agrees to take a reduced amount and release their lien on the property for a "short" payoff.
Short sales benefit the seller because, you get out from under a loan and house you cannot afford. It is an attractive alternative to foreclosure because you control the process and can work to get the highest amount possible thereby reducing any future liability. A short sale is much less damaging to your credit and you could qualify for a new loan in 2 years or less versus being frozen out of the market for 7-10 years by a foreclosure.
Short sales have become quite common as
lenders realize they will net more from an orderly sale of the property than from
a foreclosure. Short sale is an alternative to foreclosure - it is not a
gift or a right. If your property is presently in foreclosure, it may not be too late. Many lenders will postpone a foreclosure sale if they believe you are making a good-faith attempt to short sell the property. However, there are no guarantees and some lenders will not delay foreclosing for any reason.
To qualify for a short sale, you must:
- Show a hardship that gives you a reason to sell and prevents you from paying the entire loan
- Sell the property in a bone fide arms-length transaction (not to a relative or family member)
- Sell for a fair price
- Apply and qualify
Here are the steps to take:
- Contact your lender to get "the rules." "The rules" change so keep in touch and make sure the lender knows what you are doing.
- Offer the property for sale at fair market value. Be ready to support that value by showing comparable sales in the neighborhood. If the property doesn't sell, you can reduce the price but be prepared to prove to the lender that your reductions are reasonable.
- Gather together the information for the short sale package including the hardship letter explaining why you need to sell the property in a short sale, two months bank statements, two recent pay stubs and last two years tax returns.
- When you receive an offer, contact your lender to begin the approval process.
Your continuing liability
A short sale is not without consequences. You are legally liable for any deficiency. In some cases, the lender will ask you to contribute money to closing or sign a note for part or all of the deficiency. In some cases, the lender will commit to forgiving the deficiency. In many cases, the lender will say nothing and, in so doing, preserve their right to collect additional money in the future. Unfortunately, there is no way to force their hand on this and many short sales go through without a definitive answer.
If the lender forgives the debt, it is treated as income for tax purposes. You will receive a form 1099 at the end of the year. However if the property was your principal residence, or if you are insolvent at the time of the short sale, a short sale deficiency may not be considered taxable income. Consult with your tax advisor for details.