DISCLOSURES: Here are some of the issues you may face as a Seller in a Short Sale situation:
» Tax and Legal Consultant – Sellers are urged to consult with their CPA, Attorney & Credit Specialist. Bas Panch will not provide tax advice, credit advice, or legal advice regarding a short sale situation; because it can have adverse credit, legal, and tax consequences. Bas Panch advises the seller to consult with their Certified Public Accountant, Credit Specialist, and Attorney who specializes in real estate/taxation/bankruptcy law before accepting any offer to sell the property. To the extent the Seller fails to obtain the foregoing consultations, they are acting against Bas Panch’s advice.
» Taxes – the Seller will be obligated to pay taxes on any debt forgiven by the lender (the difference between what you owe on the property, and what the property actually sold for). The IRS considers debt forgiveness as ordinary income. Consequently, the difference between the loan amount and the short sale amount will be taxed at the Seller’s ordinary tax-bracket. . This will cause a Form 1099 to be issued, thus resulting in additional tax liability to Seller(s). Because of this, Seller is urged to consult with a Certified Public Accountant to review all tax and accounting issues relating to the sale of the Property.
» Credit – A lender may handle a short sale in a number of different ways. It can report the loan as paid in full, which would have not adverse credit consequences. A lender may also report the loan as being “satisfied” or “settled.” Future lenders and credit reporting agencies may consider satisfied or settled loans as being similar to a deed in lieu of foreclosure. When a Lender accepts less than the amount owed to them, it can be negatively reflected within the Seller/Borrower’s credit history, and diminish their ability to obtain future credit and/or increase the costs of future credit.
» Full Financial Disclosure – A Seller should know that a lender will likely require detailed financial statements from the Seller showing financial hardship, as a condition of approving a short sale process. Often less-than-accurate information (stated income) from the Seller was used to obtain the loan the Seller can now not afford, however, the Seller must fully cooperate with the lender’s requests for financial transparency, in order to facilitate a short sale process.
» MLS – the listing agreement as well as the MLS listing announcement will show the property is subject to a Short Sale. Both the listing agreement and the MLS will contain a statement that says any sale of the property is “subject to the lender’s approval.” This applies to Realtor’s commissions as well.
» No Guarantee of Short Sale and/or Sale of Property – While Bas Panch will undertake his best efforts marketing the property offered for sale, and seek lender approval of a short sale, the Seller is advised that Bas Panch does not guarantee that the lender(s) will approve the short sale, or that the property offered for sale will close escrow.