The Lehigh Valley real estate market is not as bad as some of the other housing markets in the United States but Allentown, Bethlehem, Easton and the surrounding areas are seeing an effect from the Short Sales and Forclosures scattered throughout the valley.
What is a Short Sale?
A Short Sale is a loss mitigation solution that allows the home owner to sell the home for less than the total amount owed thus avoiding a foreclosure. When a home owner runs into financial problems, it is usually preferable to do a Short Sale then a Deed in Lieu Of or have the home go into Foreclosure. A Short Sale is common in a market that has taken a down turn. The home can not be sold for what is owed on it and there is no equity on the home.
Impact of Short Sale on the Home Seller!
- End of Collection Activity
- Avoid stress of Foreclosure
- Able to tell friends and family house was sold versus losing to foreclosure
Participants in a Short Sale
Many parties are involved in a Short Sale. To start the process, the home seller should contact the Loss Mitigation Department for their Lender and request a Short Sale application.
Here is a diagram depicting all of the interaction involved in a Short Sale. The Mortgage Company (Service Provider) is totally involved in the negotiation process with the potential Buyer:
How Does a Lehigh Valley Home Seller Qualify for a Short Sale?
A Home Seller does not have to be behind on mortgage payments to qualify for a Short Sale but they must be able to document a hardship. In addition, the typical paperwork for home financing is required (pay stubs, tax returns, assets and liabilities).
Can Any Home Owner Do a Short Sale?
The mortgage company or bank is typically just a service provider. It is up to the "Investor" or holder of the loan to approve a Short Sale. Some Investors WILL NOT do Short Sales. If a 2nd mortgage, home equity loan, or tax/mechanic lien are involved, the Short Sale process gets more difficult and approval for a the Sale gets harder.
What are the Tax Implications of a Short Sale?
If a Lehigh Valley homeowner sells their home in a short sale the difference in what the bank or mortgage company accepts for the house and what is owed on it is considered taxable income. For instance, if the mortgage amount is $150,000 and a short sale results in the mortgage company only getting $130,000 then that $20,000 difference is considered revenue to the home seller. Currently, this tax as a result of the short sale is waived if the real estate is the seller's primary residence.
Short Sale Time Line
The process to get approval for a Short Sale typically takes 25 to 40 days after completing the application and submitting all required paperwork. Ideally, this process should be started before the house is listed For Sale.
Want More Information about Lehigh Valley Real Estate and Short Sales?
Give me a call at 484-241-1641 or email me at joe.finnerty@longandfoster.com. |