Short Sale FAQ's for the Seller

If I sell a property as a short sale, will I have to pay capital gains taxes?

No. If you have been informed that capital gains taxes are due on short sales, your source of information is misleading you. Capital gains indicates an increase of income or a "gain" from the initial investment.  In other words - a capital gain indicates that you are better off financially because you made money from the property after the sale. In a short sale, you either lose money or owe money - so no capital gain taxes should be required.

Is the bank responsible for any repairs that need to be made to a short sale property?

In most cases when you are buying a property as a foreclosure or short sale, it will be sold in AS-IS condition - meaning that any repairs needed to be made will be your responsibility. However, in the real estate purchase agreement make sure it indicates who is responsible for what.  If repairs are not specified in the agreement, then you are responsible for them.

If I have mortgage insurance and default on my loan, will it cover the deficiency amount?

It really depends on the amount of the deficiency, mortgage insurance only covers a certain amount. Also, be aware that the lender will try to collect from you before they make a claim with the insurance company. Mortage insurance is there to protect the lender not you.

What are the implications of unpaid judgements?

The worst case scenario, is your wages can be garnished.

How long does a foreclosure usually take?

This all depends on where you consider the process actually begining. Usually the bank will send a notice of default to the title company and trustees. From that point it usually takes between 3-9 months for the house to go up for auction. During this time any delinquent amounts can be paid to cure the foreclosure proceedings.

Will a good credit score help in trying to do the short sale?

A good credit score will only help as long as there are no late payments leading up to the short sale. However, some lenders may call the deficiency a judgment, which will hurt the score a bit.  Some of this can be discussed in the negotiations for the sale.

Is a short sale still possible if the property has a 2nd mortgage?

Yes, but both lenders will need to approve in some way to complete the short sale. If your first lender will be paid off with the sale you will need to negotiate the terms with the second.