Short Sale Issues

Short Sale Defiition:  Where the sales price does not yield enough money to pay all of the required expenses of the sale and the existing liens against the property,  and the seller gets one or more of the "payees" to reduce their demands in order to allow the sale to close.  Reasons:  creative financing, cashing out equity, prepayment penalty, declining market values, 3 1/3 witholding, etc

Lender Issues: 

• Will generally only deal with the borrower, or will require written consent to deal with the agent.
• May not have established practices yet, since this has not generally occured for the past 10-12 years.
• Some will require that the borrower be in default, or even already in foreclosure
• Will require an application and financial information (a formal "workout" package)
• May require others to make concessions, such as lowering commission or other lenders taking similar discounts
• May require payment of balance on an unsecured basis
• What they write off becomes taxable income, and most will issue a 1099

Tax Liens:  The IRS and FTB will generally consider releasing a property upon application, provided they are given estimated closing statements and conditioned on the seller and the junior lien holders not receibving any proceeds whatsoever.

Judgement Liens:  Can be very hard to work with.  Some will release the property for a reduced amount, but are understandably not motivated to provide a release for no payment. A homeowner in this situation should consult with a bankruptsy attorney;  they may be able to use the bankruptsy process to protect their homestead allowance from judgement liens.