Frequently Asked St. Louis short sale help Questions

Short sale and foreclosure help FAQ

Q: What is a short sale?
A: A short sale is when a lender agrees to accept less on the loan than the amount that is owed. Also, an important note about short sales is that banks will not agree to do a short sale in writing until you have a formal written offer for your property. This is why working with us is such an advantage because we buy houses.

Q: Why should I use a short sale and not just let my home get foreclosed on?
A: Short sales have a couple of huge advantages over foreclosures.  If you sell home short, then you are looking at about a two year span until you will be able to buy another home. People with foreclosures face about a five year window until they can purchase another home.  Also, your credit is more negatively affected by a foreclosure than a short sale.

Q: Why would a lender accept a short sale?
A: Lenders make money from giving loans out to people.  They are not real estate investors.  If they have a loan on a home that they are receiving no payments for, then they are not only losing the money from the loan payments, but they are losing the opportunity cost for that same amount of money to be making them money elsewhere.

The bank also has many holding costs if they foreclose on the property.  There are legal fees that they incur from the foreclosure process.  Also, they have to pay real estate commissions if they decide to sell the home and have to pay utility bills out of their own pockets.  In the summer, they have to pay for someone to cut the grass or they will risk getting fined by the county that the house is in. Finally, since the bank owns the home they are also responsible for the property taxes on the home.  All of these expenses add up and mean that the bank is very motivated to work something out with you.

By the way, because home values are still going down, they are holding on to a property that is worth a little less each day.  Therefore, it is very much in the banks interest to allow you to sell your home short.

Q: How do I stop my foreclosure?
A: Visit our how to stop foreclosure page for an overview of the foreclosure process.

Q: Do I need to be worried about deficiency judgment?
A: Missouri is a deficiency state where it is legal for the lender to come after you for the deficiency. A deficiency is the difference between the amount that you sold the property for, and what is owed for the loan. We have done hours of research on this topic, and in our many years of experience, we have never heard of a homeowner being sued for the deficiency judgment. Many people speculate as to why this is, but we believe that the major reason is that in 99.9% of the foreclosure cases that we work on are not worth it to the bank in legal fees to come after you with a law suite. Lenders always operate with the question of What’s In It For Me?  The homeowner would have to have a substantial amount of additional assets that the bank would be able to win in a law suit for it to pay off for the bank in the end.  Even in the couple cases that we have helped people that did have significant personal assets, these clients did not get sued for the deficiency judgement because instead of suing them, the banks took the deficiency amount and used it as a tax write-off.  When a bank does this, it can no longer sue you for a deficiency judgement.

Q: What tax implications do I have if I sell my home from a short sale?
A: The Mortgage Debt Forgiveness Relief Act was passed on December 20, 2007.  Before this act was created, usually a home owner that had debt forgiven or cancelled would have to include the forgiven amount of debt on his tax return.  This money was taxable.  However, this act allows you to exclude some cancelled debt on your principle residence.  The act only applies to debt incurred to buy, build, or substantially improve your principal residence.  This also applies to debt used to refinance homes that have been refinanced, but it can not exceed the balance of the original loan.  Also, if you have had debt forgiven, you will need to report this on Form 982. Form 982 must be attached to your tax return.  You can get this form at irs.gov.  For more information about the debt forgiveness act.

Q: If I file for bankruptcy will that protect me from foreclosure?
A: No.  Bankruptcy by itself won’t save your house.  The only thing that filing for bankruptcy will do is give you more time in your house.  Filing a Chapter 13 Bankruptcy should be used as a very last resort, and even then it should be used only in the right situation.

Bankruptcy stays on your credit report for ten years, can hurt your chances to get a job, get life insurance, and buy another home.  However, if you have regular income, bankruptcy can be used to get on a three to five year repayment program that allows you to use your future income toward payments of your debt.

For more information about bankruptcy.

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