Short sale basics

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Short sale basics

You bought your house recently for $200 thousand and the way you were able to pay $200 thousand is you were able to put 25% down so you made a fifty thousand dollar down payment and the balance, the other 75% you borrowed from the bank so one hundred fifty thousand dollar loan from the bank and you pay it off with your monthly payments that include paying down the loan and the interest.

Now something happened in your life maybe unfortunately you lost your job or your spouse lost their job or maybe you just overestimated your ability to pay off your mortgage payments and so you are having difficulty making them and quite frankly you can't make the mortgage payments anymore.

So in this situation you have a couple of options.

One option is you can try to sell the house.

So some type of a sale or the other option is you could essentially give the house back to the bank and that we will call foreclosure in another video we will go more in depth of what happens in foreclosure but the bank is going to get the property try to auction it off, and they can't auction it off and the bank will own the property and then maybe they will try to sell it at a later date.

And this is not a good option for you this will kill your credit which will make it very hard for you to get a loan, any type of loan but especially a mortgage loan any time in the near future really over the next several or many years so you say, OK, I want to do the sale option.

Now unfortunately for you the housing market has deflated dramatically.

And so when you talk to a realtor.

The realtor figures out, well look after all is said and done you try to sell it for more than your loan amount but you are not able to you are getting really low offers low offers are like $120 - $130 thousand so when you really sit with a realtor and you think about what the market is willing to pay for your house you realize that the most you're going to get for your house after you pay the real estate commissions.

And all of the other things that are involved when you sell a house you could get, maybe, $120 thousand for the house.

And let's say you still owe pretty close to $150 thousand on the loan to the bank your loan might have even been an interest only loan but even after a year or two you're probably not going to pay down the balance of your loan too much it might be like $140 thousand, or $145 thousand.

And you're only able to get $120 thousand for the house.

So what do you do? You don't want to get into a situation where you sell the house for $120 thousand you still owe $150 thousand on the loan and so you're still going to have to pay $30 thousand dollars for a house that you don't even have anymore so what do you do?

Well, one option and this is not always going to be an option is to go to your bank and say can I do a short sale?

And a short sale is essentially selling the house for less than you owe on the loan selling for less than what you owe and the bank doesn't have to well one, the bank would have to agree to the short sale.

Because their loan is secured by this property that you're selling and in most cases the reason why you would want to do the short sale is that the bank may forgive the balance of the loan so you try to convince bank to forgive the balance.

So for example you could go to the bank and say look I lost my job we're having trouble paying for this house now after paying real estate commissions and all the rest I can only get $120 thousand for this house I know that I owe you $150 thousand.

Can you forgive the extra $30 thousand that I owe and the bank might choose to do that.

Now, even in this situation you have to be very, very careful and this has to be negotiated with the bank and all the rest is because the bank could still report you to credit agencies report to credit agencies.

Which is really not going to be a whole lot better than getting a foreclosure.

So in part of this negotiation process.

The bank is under not obligation to either forgive your loan and let you go forth with that short sale and they're under no obligation not talk to credit agencies.

But part of that negotiation you should try to convince them Or you would ideally try to convince them not to report it to the credit agencies.

The other issue with a short sale and this is something few people think about is when you have lets say in this case $30 thousand forgiven.

The IRS might consider that to be income.

So you might have to pay income tax on this right over here.

And people always ask me if someone forgives a loan, why is that considered income?

And the best way to think about it is if the IRS did not consider that income it would be a huge loophole in how someone could compensate someone.

If I wanted to pay someone I could give them...

So this is me this is the person that I'm trying to pay I could give them a loan.

Let's say I could give them $100 thousand loan and then I could forgive the loan.

And so it would essentially be I gave them $100 thousand maybe to do some work for me it would be a transfer of money by giving a loan and then keep forgiving over and over it would be completely identical to giving someone a gift, which is taxed, or giving someone some type of income.

So a short sale, you're not always going to be able to do it it this scenario but if your house is selling less than the value of the loan you might be able to negotiate with the bank to allow you to sell the house for less than the value of the loan.

The bank's other option is they're going to have to go into some type of foreclosure proceeding and take ownership of the house which is expensive for the bank as well but they keys here are even if the bank is willing to let you sell house for less than the loan amount the owner really needs to make sure that the bank is willing to forgive the balance and ideally not report to credit agencies.

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Short sale basics발음듣기

다른 번역문 등록

You bought your house recently for $200 thousand and the way you were able to pay $200 thousand is you were able to put 25% down so you made a fifty thousand dollar down payment and the balance, the other 75% you borrowed from the bank so one hundred fifty thousand dollar loan from the bank and you pay it off with your monthly payments that include paying down the loan and the interest.발음듣기

다른 번역문 등록

Now something happened in your life maybe unfortunately you lost your job or your spouse lost their job or maybe you just overestimated your ability to pay off your mortgage payments and so you are having difficulty making them and quite frankly you can't make the mortgage payments anymore.발음듣기

다른 번역문 등록

So in this situation you have a couple of options.발음듣기

다른 번역문 등록

One option is you can try to sell the house.발음듣기

다른 번역문 등록

So some type of a sale or the other option is you could essentially give the house back to the bank and that we will call foreclosure in another video we will go more in depth of what happens in foreclosure but the bank is going to get the property try to auction it off, and they can't auction it off and the bank will own the property and then maybe they will try to sell it at a later date.발음듣기

다른 번역문 등록

And this is not a good option for you this will kill your credit which will make it very hard for you to get a loan, any type of loan but especially a mortgage loan any time in the near future really over the next several or many years so you say, OK, I want to do the sale option.발음듣기

다른 번역문 등록

Now unfortunately for you the housing market has deflated dramatically.발음듣기

다른 번역문 등록

And so when you talk to a realtor.발음듣기

다른 번역문 등록

The realtor figures out, well look after all is said and done you try to sell it for more than your loan amount but you are not able to you are getting really low offers low offers are like $120 - $130 thousand so when you really sit with a realtor and you think about what the market is willing to pay for your house you realize that the most you're going to get for your house after you pay the real estate commissions.발음듣기

다른 번역문 등록

And all of the other things that are involved when you sell a house you could get, maybe, $120 thousand for the house.발음듣기

다른 번역문 등록

And let's say you still owe pretty close to $150 thousand on the loan to the bank your loan might have even been an interest only loan but even after a year or two you're probably not going to pay down the balance of your loan too much it might be like $140 thousand, or $145 thousand.발음듣기

다른 번역문 등록

And you're only able to get $120 thousand for the house.발음듣기

다른 번역문 등록

So what do you do? You don't want to get into a situation where you sell the house for $120 thousand you still owe $150 thousand on the loan and so you're still going to have to pay $30 thousand dollars for a house that you don't even have anymore so what do you do?발음듣기

다른 번역문 등록

Well, one option and this is not always going to be an option is to go to your bank and say can I do a short sale?발음듣기

다른 번역문 등록

And a short sale is essentially selling the house for less than you owe on the loan selling for less than what you owe and the bank doesn't have to well one, the bank would have to agree to the short sale.발음듣기

다른 번역문 등록

Because their loan is secured by this property that you're selling and in most cases the reason why you would want to do the short sale is that the bank may forgive the balance of the loan so you try to convince bank to forgive the balance.발음듣기

다른 번역문 등록

So for example you could go to the bank and say look I lost my job we're having trouble paying for this house now after paying real estate commissions and all the rest I can only get $120 thousand for this house I know that I owe you $150 thousand.발음듣기

다른 번역문 등록

Can you forgive the extra $30 thousand that I owe and the bank might choose to do that.발음듣기

다른 번역문 등록

Now, even in this situation you have to be very, very careful and this has to be negotiated with the bank and all the rest is because the bank could still report you to credit agencies report to credit agencies.발음듣기

다른 번역문 등록

Which is really not going to be a whole lot better than getting a foreclosure.발음듣기

다른 번역문 등록

So in part of this negotiation process.발음듣기

다른 번역문 등록

The bank is under not obligation to either forgive your loan and let you go forth with that short sale and they're under no obligation not talk to credit agencies.발음듣기

다른 번역문 등록

But part of that negotiation you should try to convince them Or you would ideally try to convince them not to report it to the credit agencies.발음듣기

다른 번역문 등록

The other issue with a short sale and this is something few people think about is when you have lets say in this case $30 thousand forgiven.발음듣기

다른 번역문 등록

The IRS might consider that to be income.발음듣기

다른 번역문 등록

So you might have to pay income tax on this right over here.발음듣기

다른 번역문 등록

And people always ask me if someone forgives a loan, why is that considered income?발음듣기

다른 번역문 등록

And the best way to think about it is if the IRS did not consider that income it would be a huge loophole in how someone could compensate someone.발음듣기

다른 번역문 등록

If I wanted to pay someone I could give them...발음듣기

다른 번역문 등록

So this is me this is the person that I'm trying to pay I could give them a loan.발음듣기

다른 번역문 등록

Let's say I could give them $100 thousand loan and then I could forgive the loan.발음듣기

다른 번역문 등록

And so it would essentially be I gave them $100 thousand maybe to do some work for me it would be a transfer of money by giving a loan and then keep forgiving over and over it would be completely identical to giving someone a gift, which is taxed, or giving someone some type of income.발음듣기

다른 번역문 등록

So a short sale, you're not always going to be able to do it it this scenario but if your house is selling less than the value of the loan you might be able to negotiate with the bank to allow you to sell the house for less than the value of the loan.발음듣기

다른 번역문 등록

The bank's other option is they're going to have to go into some type of foreclosure proceeding and take ownership of the house which is expensive for the bank as well but they keys here are even if the bank is willing to let you sell house for less than the loan amount the owner really needs to make sure that the bank is willing to forgive the balance and ideally not report to credit agencies.발음듣기

다른 번역문 등록

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