Do Short Sales With Freddie Mac Result in A Deficiency Judgement?
In a short sale, it’s a pretty common question to ask whether or not, Do Short Sales With Freddie Mac Result in A Deficiency Judgement? Luckily for us there’s a clear definition already out there for this.
Chapter 55.3.1: IRS Form 1099-C, Cancellation of Debt (04/25/06) states that the Servicer must report cancellations of Borrowers’ mortgage debt on IRS Form 1099-C, Cancellation of Debt, as required by the Internal Revenue Code. Under 55.3.1.d .6 it defines a short sale (not by name) as “A discharge of indebtedness under an agreement with the debtor to cancel the debt at less than full consideration.
Most of the time you want to get it in writing and possibly reviewed by an attorney but this is pretty clear that a short sale completely cancels the debt. The way it’s worded above, it’s worth pointing out that your credit report often reports a short sale this way as well.
We’ve answered this before but we did want to update what a short sale is in Real Estate just to be clear. After all it’s been 4 years of short sales in Real Estate. The definition is still pretty much the same:
The short sale in real estate is where the lender/investor/bank lower’s their payoff (what is owed) to allow the sell of the home to a buyer at today’s (lower than what home was purchased for) market value.
A few days ago we covered, What Is The Difference Between A Loan Servicer, Investor and Lender? today we’ll basically be doing a “part 2.” Many time servicers will transfer or sell the rights to a loan. So you might ask What Happens If My Loan Sold? If you’re current on your loan then there’s no need to stress, nothing really happens. However, if you are with Bank of America for instance and you are in a short sale process, then you should be aware.
Bank of America services mortgage loans for hundreds of investors. As a part of normal servicing, investors may decide to release or transfer servicing from Bank of America to another company.
Servicing may be transferred on first, second or stand-alone liens. In most cases, once the servicing transfer occurs, the short sale process ends with Bank of America and the homeowner must contact the new servicer to determine what foreclosure alternatives may be available.
Keys to remember if you are doing a short sale.
Some key activities that may occur during servicing transfer:
All lenders should send a letter 15 days before the transfer date.
If you are with Bank of America, then they may call the agent to advise of the impacts to the short sale.
The new servicer will send a letter or statement advising the homeowner where to send payments.
If an offer has already been accepted on your short sale, a closing has been set and an approval letter issued, the new servicer will determine if the short sale will continue. [In other words, you’ll be starting over, but hopefully “fast tracked.”
The longer answer is that you really need to get a short sale specialist and get an offer on the home for the bank to even consider you for a short sale. That coupled with your hardship information is enough for you to “qualify.” I do get angry when I see signs and advertisements for pre-foreclosure or “potential short sale.” If your home is up for sale as a potential short sale, then your agent doesn’t know what we know. If you’re upside down on your home and you have an offer, we can do your short sale.
That’s really the reason we think “How to short sale” is kind of silly question, because the only real components are: