Jerry LaRose, Realtor, Short Sale Expert Orlando, Florida Real Estate Expert

• Will I owe the bank money after the short sale is accepted?
• If you are able to negotiate a price and buy it for less then I owe, will the bank come after me for the difference?

When the lender or bank accepts a short sale on the property for less than what was owed, then a deficiency exists with the loan. The deficiency is the difference between what the homeowner owed and the amount the property sold for.

For example, Mr. Jones owes $300,000 on her home and the lender accepts a short sale for $200,000. There is a deficiency of $100,000 for which the lender can then sue the homeowner. The key phrase is "can sue." That is the right of the lender. However, that is a practice that almost never happens but, it is a real concern for the homeowner. In most cases, the homeowner wants nothing else to do with the lender once the property is sold.

If the deficiency judgment is granted, it would appear on the homeowners' credit report just as any other judgment would appear.

Will they be required to pay the difference? During the short sale process, we will negotiate with the lender to not seek a deficiency judgment against the homeowner.

Some lenders as a matter of policy, will not seek a judgment against the homeowner because they feel they have waived their right by accepting a short sale however, if you can get them to openly acknowledge they will not seek a judgment; the owner will be more than happy.

There is a second issue as it relates to the deficiency and that is the 1099.

The lender will issue a 1099 to the homeowner for the difference. In Mr. Jones case, the lender will issue him a 1099 for $100,000. This will have to be reported as income Mr. Jones had received and thus he will have to pay taxes on the $100,000 as though it was earned income.

Upon successfully closing a short sale, lenders will always report a loss to the IRS and issue a 1099. However, the Mortgage Forgiveness Act of 2007 was signed into law on 12-20-07 and is now official, effectively getting rid of the question "will I be taxed on the Short Sale". Prior to this action, forgiven mortgage debt due to foreclosure, short sale, or deed in lieu of foreclosure, was potentially taxable income to the borrower. This was the subject of much media attention and led to many questions and concerns from Sellers wondering whether or not they were going to get "hit with taxes" on the Short Sale. The new law, however, temporarily waives these taxes for debts forgiven (as high as35%) from the beginning of 2007 to the end of 2009.

This will effectively put an end to the question from Sellers... will I be taxed on the Short Sale discount. The definitive answer (at least until the end of 2009) is NO! For a copy of the Mortgage Forgiveness Debt Relief Act of 2007, go to: http://www.govtrack.us/congress/bill.xpd?bill=h110-3648 or http://www.whitehouse.gov/news/releases/2007/12/20071220-6.htmlThe bottom line here is that only Acquisition funding can be forgiven by the Mortgage Forgiveness Debt Relief Act of 2007.Foreclosure, Deed in Lieu and Short Sales are all treated the same in regards to taxes. Any cancellation of debt is a taxable event except for any acquisition funding for your primary residence that you've lived in for the last 2 years. Everything else is taxable. However, please see you tax advisor if you have a second home or investment property that you are considering a short sale on. You accountant may advise you that you may have a loss on this investment property that would offset any gain. Please seek advise from your tax advisor.

In my dealing with lenders, we have found that they generally will not seek a deficiency judgment because of the hardship. There are a couple of options that the homeowner has as it relates to the deficiency judgment. In Mr. Jone's case, he could file bankruptcy to address the judgment. Mr. Jones could also short sale the deficiency with the lender at a later date. In other words, offer the lender a lesser amount as "payment in full."

Here is an important note. The lender, if they issue a 1099 cannot then sue for a deficiency judgment. The lender can only pursue one or the other. In other words, Mary can't receive both a deficiency judgment and 1099 from the lender.

It is obviously in the best interest of the homeowner to be proactive and deal with the short sale before it becomes a foreclosure. At least there is a chance that we can negotiate away the deficiency before it even becomes an issue.

About the author:

Jerry LaRose is an Orlando Area Residential Real Estate Expert, who can assist you with the purchase and/or sale of real estate in Orlando, Windermere, Winter Garden Florida or any place in the country. Jerry has created a team of professionals throughout Orlando and the country to ensure that you enjoy a smooth transition to your new area. Please visit www.JerrySellsOrlando.com for your real estate needs. Please give me a call if you have questions about the Orlando and Central Florida real estate market.

Jerry LaRose, P.A., ABR, GRI, e-PRO, CLHMS, REALTOR® 407-580-7011

When you are preparing for a major purchase make sure you check your credit scores and credit reports from all three credit reporting agencies: TransUnion, Equifax and Experian. Looking at your scores and reports a few months before your loan application will help you get a complete picture of your credit health. Worried if your credit score makes the grade? If your credit score is above 700 you will probably qualify for a prefferedloan. Under 650, you may have trouble receiving new credit.

• Payment history - A good record of on-time payments will help your credit.
  
• Outstanding debt - High balances in relation to your credit limits can harm your credit. Aim for balances under 35%.
  
• Credit account history - An established credit history makes you a less risky borrower. Think twice before closing old accounts before a loan application.
  
• Recent inquiries - When a lender or business checks your credit, it causes a hard inquiry and a slight ding to your credit score. Apply for new credit in moderation.
  
• Types of credit - A healthy credit profile has a balanced mix of credit accounts and loans.

If your credit score is a little low, pay your bills on time, reduce your debt, remove inaccuracies and avoid new inquiries for a few months. Plus, don't forget that your credit score is not the only factor a lender may look at when they are evaluating your financial standing.

Jerry LaRose is an Orlando Area Residential Real Estate Expert, who can assist you with the purchase and/or sale of real estate in Orlando, Windermere, Winter Garden Florida or any place in the country. Jerry has created a team of professionals throughout Orlando and the country to ensure that you enjoy a smooth transition to your new area. Please visit www.JerrySellsOrlando.com for your real estate needs. Please give me a call if you have questions about the Orlando and Central Florida real estate market.

Jerry LaRose, P.A., ABR, GRI, e-PRO, CLHMS, REALTOR® 407-580-7011

Below are my Orlando Short Sale FAQ's

What is a Short Sale?

A short sale is when the lender will accept less than the full amount due on a mortgage

when a property is sold. Usually, the lender will accept the short sale to avoid the time

and expense of a foreclosure. Financially the lender is actually ahead after a short sale.

What is a Foreclosure?

In simple terms: The homeowner has not been making the mortgage payments, and it

is the action the financial institution can use to take the house back. The homeowner

borrowed money using the house as collateral with the agreement that if they could not

pay it back, then the lender could take the house.

What is involved to do a Short Sale?

In order to start negotiating the Short Sale the lender will usually require the

homeowner to submit verification that they are qualified in order to consider the short

sale. The information required and documentation necessary is provided as well as

training on the entire process.

Will the bank come after the homeowner for the difference?

I will always negotiate with lenders to "Not seek a deficiency judgment" against the

homeowner.

Is the seller going to get hit with a tax bill or a 1099 if you do a short sale?

Upon successfully closing a short sale, lenders will always report a loss to the IRS and

issue a 1099. However, the Mortgage Forgiveness Act of 2007 was signed into law on

12-20-07 and is now official, effectively getting rid of the question "will I be taxed on the

Short Sale". Prior to this action, forgiven mortgage debt due to foreclosure, short sale,

or deed in lieu of foreclosure, was potentially taxable income to the borrower.

This was the subject of much media attention and led to many questions and concerns

from Sellers wondering whether or not they were going to get "hit with taxes" on the

Short Sale.

The new law, however, temporarily waives these taxes for debts forgiven (as high as

35%) from the beginning of 2007 to the end of 2009.

This will effectively put an end to the question from Sellers... will I be taxed on the Short

Sale discount. The definitive answer (at least until the end of 2009) is NO!

For a copy of the Mortgage Forgiveness Debt Relief Act of 2007, go to:

http://www.govtrack.us/congress/bill.xpd?bill=h110-3648 or

http://www.whitehouse.gov/news/releases/2007/12/20071220-6.html

The bottom line here is that only Acquisition funding can be forgiven by the

Mortgage Forgiveness Debt Relief Act of 2007.

Foreclosure, Deed in Lieu and Short Sales are all treated the same in regards to

taxes.

Any cancellation of debt is a taxable event except for any acquisition

funding for your primary residence that you've lived in for the last 2 years.

Everything else is taxable. However, please see you tax advisor if you have

a second home or investment property that you are considering a short sale

on. You accountant may advise you that you may have a loss on this

investment property that would offset any gain. Please seek advise from

your tax advisor.

Will the homeowners credit be affected?

If the homeowner has to short sale their home they've most likely missed payments

already. That in itself has already adversely affected their credit. The key here is to stop

the devastating affect on your credit that a Foreclosure causes. A Foreclosure is the

most damaging record on your credit report - its even worse than bankruptcy.

By working with Jerry LaRose you give yourself a fighting chance of avoiding foreclosure

and start towards the "Rebuilding" process. With our help, your credit will recover

quickly if you keep your other lines of credit in good standing. With Jerry LaRose you

have an experienced team of professionals that will help you through these tough times.

Is a Short Sale right for me and my situation?

Mortgage lenders are increasingly willing to work with borrowers faced with a financial

hardship to accept a discounted payoff on a mortgage. If you are faced with a hardship,

and are unable to meet your obligation on your mortgage, your lender would prefer to

settle the matter with you as opposed to taking the property through foreclosure.

As you consider the option of pursuing a short sale, remember your lender is looking to

limit any potential loss on your loan. By completing a short sale, your lender has arrived

at a solution that is, for them, much better than a costly foreclosure.

What sort of hardship would my lender consider legitimate?

To some extent, that will depend upon the mortgage company considering the short

sale request. Generally, as long as the hardship is real and the mortgage company

believes the loan is likely to become delinquent as a result, the short sale request will be

processed by the Loss Mitigation Department. A big key to getting Loss Mitigation to

accept a hardship is to submit a strong hardship letter. The hardship letter sets the tone

for the entire file.

Will the lender approve a Short Sale even if the homeowner is current on their mortgage?

Yes we have successfully negotiated and received an approval on a short sale even

when the homeowner was current on their payments.

Why would a mortgage company agree to accept a short sale?

There are actually several reasons why a mortgage company would approve a short sale

payoff, including the following:

• Legal Concerns: Mortgage lenders have come under legal pressure to work with

borrowers to equitably resolve situations where borrowers are unable to meet their

mortgage obligation, particularly when the borrower makes an effort to arrive at a

compromise solution.

• Wall Street is Watching Mortgage lenders rely heavily on their ability to package and

sell bundles of loans on the secondary mortgage market. They need to sell these

bundles of loans in order to put the funds back to work by loaning the money again and

collect loan fees along the way. If mortgages perform poorly after they are sold it could

impact the lender's ability to sell their loans on the secondary market. A successful short

sale gets the loan payoff resolved quickly.

• Asset Management Expenses- If a lender acquires a property through foreclosure, the

property will be managed until it is repaired and resold. It is expensive to manage real

property assets - homes - spread throughout the region, the state and possibly even the

nation. Keeping properties maintained, keeping utilities on, making repairs and the

administrative costs attached to these activities are all costs the lender would prefer to

avoid. A successful short sale eliminates most of these costs.

• Reserve Requirement- Delinquent and non-performing loans place another burden on

mortgage lenders. For all delinquent and non-performing loans lenders must set aside

funds in reserve to deal with potential losses. These funds cannot be put to work

generating new loan fees until the bad loans are resolved. A successful short sale lets

the lender put their money back to work.

Can I still short sale my home even if I have 2 loans?

Yes, it doesn't matter how much you owe. The lender will evaluate what the current

market value is and then decide how much they will accept.

Can I still do a short sale even if the property is in very bad condition?

Yes. Lenders are more motivated to do a short sale on a property that needs work than

on a property that doesn't. Lenders know losses start to skyrocket when they foreclose

on a property that needs a lot of repair work. Lenders are in the business of lending

money not property management and home repairs.

If I am behind in my payments and can't afford closing costs what can I do?

Lenders are understanding when it comes to this situation and will actually pay the

REALTORS® commission and your closing costs.

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Jerry LaRose is an Orlando Area Residential Real Estate Expert, who can assist you with the purchase and/or sale of Real Estate in Orlando, Windermere, Winter Garden Florida or any place in the country. Jerry has created a team of professionals throughout Orlando and the country to ensure that you enjoy a smooth transition to your new area. Please visit www.JerrySellsOrlando.com for your real estate needs.  Please give me a call if you have questions about the Orlando and Central Florida real estate market.

P.S. If you are listing your home as a short sale in Orange County Florida and Orlando, Windermere, Winter Garden,  or Ocoee Florida make sure you hire an agent who knows how to do short sales and has the experience to get the job done. We are doing successful short sale packages. Call us at 407-580-7011 to find out more about Orange County Short Sales and Orlando Area Short Sales

Below is a Short Sale Info. Sheet that may be helpful in regards to preparing for your short sale.

SHORT SALE INFO SHEET

Borrowers Name: ___________________________________________ DOB _________

Borrower #2: _______________________________________________

Social Security Number: B#1: _____________________ B#2: ____________________

Loan Number: __________________________________________________________

Lender Name: __________________________________________________________

Lender Phone: __________________________________________________________

Loan #2 Number: ________________________________________________________

Lender #2 Name: ________________________________________________________

Lender #2 Phone: ________________________________________________________

Subject Property Address: __________________________________________________

_______________________________________________________________________

Borrower Mailing Add: ____________________________________________________

Borrower Phone Associated with Loan: _______________________________________

Documentation In File:

__ Lender #1 Short Sale Package List: ______________________________

__ Lender #2 Short Sale Package List: ______________________________

__ 1. Most recent mortgage statement or coupon

__ 2. Copy of any letters you have received from your lender regarding delinquency

__ 3. Current proof of income (two recent pay stubs from each person on the mortgage)

__ 4. Two most recent tax returns (1040 Form, only first two pages)

__ 5. Two most recent bank statements (all accounts: checking, savings, etc.)

__ 6. Freddie Mac Borrower Financial Information form or one provided by your lender.

__ 7. Handwritten Hardship Letter

__ 8. Listing Agreement

__ 9. Signed Sales Contract

__ 10. Estimated HUD -1

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Jerry LaRose is an Orlando Area Residential Real Estate Expert, who can assist you with the purchase and/or sale of Real Estate in Orlando, Windermere, Winter Garden Florida or any place in the country. Jerry has created a team of professionals throughout Orlando and the country to ensure that you enjoy a smooth transition to your new area. Please visit www.JerrySellsOrlando.com for your real estate needs. Please give me a call if you have questions about the Orlando and Central Florida real estate market.

P.S. If you are listing your home as a short sale in Orange County Florida and Orlando, Windermere, Winter Garden, or Ocoee Florida make sure you hire an agent who knows how to do short sales and has the experience to get the job done. We are doing successful short sale packages. Call us at 407-580-7011 to find out more about Orange County Short Sales and Orlando Area Short Sales

Many times other Orlando agents and sellers have asked "What should go into a Hardship letter for a short sale" Below I am sharing with you an example that I use with my sellers. It may not be perfect but it works. Hope this Helps.

Lender Name

Lender Address

Today's Date

Re: Hardship Letter/Short Sale for 123 Main Street, City, State 12345

To Whom It May Concern:

I purchased the property at 123 Main Street in March 2006. At that time, I had just started my own antique resale business, which had great promise for generating profits capable of supporting my mortgage. Unfortunately, sales were slow, which I attribute to great declines in tourism after gas prices skyrocketed. I ran out of money, and began working as a waiter to make ends meet. At the same time I was redoubling my efforts in my own business, but to no avail. After struggling for months to make my expensive mortgage payments, I had no choice but to put my house on the market. In August of 2006 I put my home up for sale by owner at an original listing price of $210,000. The only people to look at the house ran when they saw the extensive damage to the pool and the severe water damage from a leaking roof that had long needed a replacement. I lowered the price, but still had no takers. Over the next couple of months I lowered the home price three times, finally settling at $170,000. This price was the lowest I could list the house at and still afford real estate agent commissions to be deducted, although it leaves me with no profit. The home still has no offers. I am working with a Real Estate agent now, who is listing my house and promises to push it to get it sold quickly. I believe that using an actual agent will ensure that the home sells promptly.

I love my home, but I also understand that at this point, I cannot afford it. I am a single parent, now working as a waiter to survive. My financial situation cannot sustain a home mortgage of nearly $2000.00 per month. I would like nothing more than to sell my home, avoid foreclosure, and salvage my credit. This is my main concern. I know that a foreclosure on my record will affect me for years to come. I would ask that you please assist me in avoiding this.

Please accept this offer as payment in full. My attorney has advised me to file bankruptcy, but I prefer to avoid further destruction of my credit. I just want to move on and start over.

I deeply appreciate your help and understanding in this matter. If you have any questions, or need anything further from me, please contact me personally.

Kindest regards,

Home Owner Name

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Jerry LaRose is an Orlando Area Residential Real Estate Expert, who can assist you with the purchase and/or sale of Real Estate in Orlando, Windermere, Winter Garden Florida or any place in the country. Jerry has created a team of professionals throughout Orlando and the country to ensure that you enjoy a smooth transition to your new area. Please visit www.JerrySellsOrlando.com for your real estate needs. Please give me a call if you have questions about the Orlando and Central Florida real estate market.

P.S. If you are listing your home as a short sale in Orange County Florida and Orlando, Windermere, Winter Garden, or Ocoee Florida make sure you hire an agent who knows how to do short sales and has the experience to get the job done. We are doing successful short sale packages. Call us at 407-580-7011 to find out more about Orange County Short Sales and Orlando Area Short Sales.