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Short Sales in Real Estate: Everything You Need to Know

Are you considering doing a short sale on your home? Check out this video for a great overview of everything you wanted to know about short sales in real estate from Chicago real estate attorney Erica Minchella. Hey everyone, Barry Zlotowicz here with the LawFull channel. On this channel, you’re going to find bi-weekly videos on the legal topics that affect our lives. Please subscribe to our channel and if you have any legal questions, reach out to me. If I can’t help you, I’ll find someone who can. Today I’m in Skokie Illinois talking with short sale lawyer Erica Minchella. I’ve read a lot in the news that some people are saying that a recession is coming. When that happens people might get behind on their mortgage payments and the bank might foreclose on your loan. An alternative to foreclosure is doing a short sale. So, what is a short sale? A short sale is a sale of real estate where the lender will not be paid In full when the property is sold and a release of the mortgage is sought for one or more mortgages or liens against the property So, a short sale is a good deal because the bank let’s you out of the home without paying off the whole mortgage. But there are drawbacks as well to be discussed. Why would a bank agree to a short sale? It’s more money in the bank’s hands than if they go through a foreclosure. Foreclosure is costly. So getting a short sale done in advance of a foreclosure is advantageous. Is it better to do a short sale or foreclosure? It has to do with your credit. If you do a short sale, your credit might be cleared up in 2 years. However, with a foreclosure, it might be 7 years before you can get another mortgage. Are there alternatives to a short sale? You can do a deed in lieu of foreclosure. That means that you give a deed back to the lender so that they don’t foreclose on you. You can allow the foreclosure to proceed and defend it. It will take a long time to resolve and you will not pay your mortgage payments during this period so that can save you a lot of money. Or you can do a consent foreclosure and allow the foreclosure to proceed and negotiate so you don’t have any liability after the deal is done. What is the process of a short sale? It’s a complicated process so you should consult with a short sale attorney who understands short sales. A lot of attorneys only do real estate closings. Short sales are different and thus it’s important to have an attorney who understands them. An attorney can tell you what problems there are as well as opportunities. You will also here what the tax implications are. Next you should find a real estate broker who understands how to present short sale properties. So, how does a short sale work for the seller? If the short sale goes through, generally speaking, the home owner is then off the hook for the balance remaining on the mortgage. That might be different if there are multiple mortgages on the home. It also depends on the lender. Some might let the seller go and others want their money. In addition, the lien might get released but not the debt. What are the possible scenarios when a short sale is approved or not? They need to expect to move within 30-45 days while the buyer finishes up getting their loan. And you have to leave the property in room-clean condition. You also need to think about where you are going to rent and getting money together for a rental. If the short sale is not approved, often the foreclosure is pending at the same time as the short sale. And in that case, the foreclosure might go forward. What are the tax implications of a short sale? First, there used to be a statute in place called the Mortgage Debt Forgiveness Act that required the forgiveness of debt. But that expired 12/31/2017 and it hasn’t been renewed. So, someone who sells their property in a short sale may have tax ramifications (unless your insolvent). How do you qualify for a short sale? Basically, if you don’t have the assets necessary or can’t afford to pay for your mortgage, then you may qualify for a short sale. Erica told a funny story about a client who had $500k in the bank but wanted to do a short sale. She advised them that they could not do the short sale because they had the assets to pay the $150k they owed on the mortgage. Thanks for checking out this video. Please subscribe to my channel and if have any legal questions, reach out to me. If I can’t help you, I’ll find someone who can. If you’d like to reach Erica Minchella directly, check out her website at https://www.ericaminchellalaw.com/.