A short sale means that the property is sold for less than is owed to the mortgage company or bank. This requires the approval of the lender to accept less than is owed to pay off the mortgage. The mortgage company or bank may look to the homeowner to pay some or all of the difference between the sales price and the amount owed. If the property is investment property, which is anything other than the primary residence, the mortgage company or bank can issue a 1099 IRS return to the homeowner, who will then have to pay tax on the deficiency amount. The mortgage company or bank, by law, cannot issue a 1099 as part of the short sale of a primary residence.
The homeowner will have to complete a financial affidavit and disclosure and the homeowner will have to write a hardship letter describing the homeowner’s hardships and financial situation. The mortgage company or bank will then take this information, along with other information about the property itself, and make a determination as to whether they will accept the buyer’s offer. Negotiating with the mortgage company or bank is key to the short sale process. The homeowner should be familiar with the process, or retain professionals to handle the process for them.