Maricopa Chamber Members Blog

Are “Short Sales” an Option For You?

Last modified: August 2, 2007

By Terri Kingery | Email Author

Submitted by Mark H. Schwartz, Senior Manager, CFO TECH PLLC
You can find out how to contact Mark in the Chamber Directory

The City of Maricopa is in transition. The go-go days of double-digit percentages in residential growth are behind us. Those who bought early made their profits and got out. Those who bought from the ones who made money are now stuck with the other side of the boom – the down side.

There are choices to be made if you are able to keep up with your payments and handle your budget. Alas for many, that simply isn’t possible. People bought assuming the price appreciation would continue unabated and their aggressive negative amortization loans with prepayment penalties in a downwardly spiraling market have left them with a house worth far less than they owe, no ability to sell what with the dense forest of for-sale signs and a job that quite possibly won’t be there come the end of the year.

For you, the choice is face foreclosure, bankruptcy or, if the lender will agree to it, short sell your home. Short sales are not a panacea and are not always a viable option. Oftentimes, folks owe money on both a first and a second mortgage and cannot make payments on either. In that case, the possibilities are quite limited most of the time. If you owe around $30,000 more than you can sell your house for, however, you could consider a short sale.

In a short sale, you make application to the bank or lender to sell your home to get out from under. They will typically conduct a comparative market analysis or CMA to determine what your house is realistically worth. They will assess your current financial condition to determine whether or not you can afford to continue on your current course -– even if it means tightening your belt a few notches.

If you owe more in liabilities than you have assets, your paycheck does not come close to paying all your regular bills and frankly you don’t see at the light at the end of the tunnel, then you are what is considered insolvent. Insolvency could mean you could be forced into involuntary bankruptcy. However, most creditors would prefer something rather than nothing but a useless asset. Thus, in many cases the lender will negotiate realistic terms, so that they can at least recover something from the borrower – you.

That is where Short sales come in. In a short sale, the bank sells your house at auction or within a finite time frame to a willing buyer at a drastically (often 25% or more) reduced sales price. The catch is you are left owing the balance. Then the lender is forced to forgive the remaining debt, know as a COD or cancellation of debt. In the event of a COD, the lender will typically issue a Form 1099 miscellaneous income for the amount of debt that is forgiven and you must report it on your personal income tax return, unless you can prove that you are insolvent. In order to make the determination you must seek the advice of an accounting and tax professional – your local CPA office.

The point is that you still have options. This isn’t the time to give up your dreams. It is simply time to honestly assess your circumstances and make the appropriate decisions based on your highly individualized circumstances. It is time, in short to visit your local CPA and get started on the road to recovery and ultimately to your future success. Good luck!

Mark H. Schwartz, Senior Manager
CFO Tech, PLLC