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County of Los Angeles |
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Short Sales
What is a short sale?
If you cannot make your mortgage payments you might be able to sell the property for less than what you owe. This is called a short sale.
There are several benefits to a short sale. You will avoid foreclosure and lessen the damage to your credit.
When you list your home for sale in a short sale transaction, your lender and/or servicer must accept the buyer’s offer. The short sale process varies for each lender. Do your homework. Contact your lender and ask them about their process and what their short sale requirements are. It’s wise to contact your lender and/or servicer before you put your house on the market so that they can determine the appropriate selling price for your home and begin obtaining the necessary approvals required for a short sale. Keep in mind that it involves a lot paperwork and can take a long time to finalize, up to 120 days or even longer.
Who can conduct a short sale?
With very few exceptions, only a licensed real estate broker or a licensed real estate salesperson under the supervision of a licensed real estate broker can conduct a short sale. Make sure the real estate broker has experience with short sales, which can be complicated. To see if someone is a licensed real estate agent contact the California Department of Real Estate at (213) 620-2072 or at their website.
A licensed attorney in California can conduct a short sale but only if those services fall within the scope of their practice. To see if someone is properly licensed as an attorney contact the California State Bar at (213) 765-1000 or at their website.
Are my taxes affected?
If you conduct a short sale the amount of debt that is forgiven could affect your taxes. For example, if you owe your lender $300,000 and your lender agrees to conduct a short sale and settle for $250,000, your lender has forgiven a $50,000 debt. This forgiven debt could be considered taxable income.
Fortunately, federal law allows homeowners whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012 to exclude the debt forgiven from their income. This applies only if the home is your primary residence.
Also, state law allows homeowners to exclude the forgiven mortgage debt of their primary residence from their income during tax years 2009 through 2012.
Watch out for scams!
Never sign a document without reading it first. Many homeowners think they are signing documents for a short sale. Later, they discover that they actually transferred ownership of their home to someone who is now trying to evict them.
Sometimes a scammer will tell you that you can stay in the home as a renter with the option to buy back the home back later. During this time you are instructed to make monthly rent payments to the scammer. In actuality, no services are being provided and the foreclosure of the property is still ongoing. This type of scam might even involve a fraudulent bankruptcy filing that delays the foreclosure and allows the scammer to receive more rent from you. Eventually the lender forecloses on the property and you lose the money paid to the scammer. (See Foreclosure Rescue Scams.)
Are there any government programs available?
If you are thinking about a short sale, contact a HUD-approved counselor at (888) 995-HOPE (4673) and ask about the Home Affordable Foreclosure Alternatives (HAFA) Program. There are several benefits to this program: you may receive up to $3,000 in relocation assistance when your home is sold, lenders and servicers must adhere to time deadlines, and it requires the homeowners to be released from future liability for the mortgage debt. Additional information about HAFA is available at www.makinghomeaffordable.gov.
Contact us for more information or speak with one of our counselors at (800) 973-3370. If you live outside of Southern California, call us at (213) 974-1450.
Updated Oct. 25, 2011
For more information:
County of Los Angeles Department of Consumer Affairs
B-96 Kenneth Hahn Hall of Administration
500 W. Temple Street *
Los Angeles, CA 90012-2706
Telephone (800) 593-8222 (within LA County)
web site: dca.lacounty.gov