Los Angeles Short Sale Tips

A short sale occurs when a homeowner sells his or her property for less money than the remaining balance owed on their mortgage. As home values continue to decrease nationwide, a short sale is now a popular "out" for a homeowner who cannot make his or her mortgage payment and currently owes more on the home than it’s worth.

Advantages of a Short Sale
A short sale presents opportunities for the buyer, seller, and lender. The buyer is able to purchase the short sale home at a discounted price, while the seller is able to sell their "underwater" home (a home that has a higher outstanding loan balance than the actual market value of the property) and avoid foreclosure. Avoiding foreclosure saves the lender lots of money in the long run.

Los Angeles Short Sales Increase
The recent national housing crisis hit the city of Los Angeles hard. Foreclosures popped up in neighborhoods across the city, which lowered other property values in the area. Many Los Angeles homeowners fell behind on their mortgage payments and/or have an underwater home. With the average number of short sales growing nationwide, more and more Los Angeles homeowners are considering a short sale of their property.

Determine Your Home’s Value
In order to determine if a Los Angeles short sale is a good option for you, you must establish the current market value of your property. Your local real estate agent can give you an estimate of the value of your home by comparing it with other properties in your neighborhood. You can also look at online real estate websites to help give you a basic idea of your home’s value. It is important to get a rough estimate so that you can compare the value of your home to the amount you still owe on your mortgage.

Explore Other Options
Before you pursue a Los Angeles short sale, try to rule out other options like refinancing or loan modification. Often times, your lender will work with you to help you remain in your home; he or she may lengthen your mortgage loan term or issue you a lowered interest rate in order to reduce your monthly mortgage payment. If you do not qualify for refinancing or loan modification, then consider a Los Angeles short sale in order to avoid foreclosure. Note, however, that short sales are notorious for being anything other than "short." The application and approval process alone could take months.

Work with a Qualified Lender
To qualify for a Los Angeles short sale, you will need to divulge personal documentation such as income verification, bank statements, and tax returns. You may also be asked to write a letter documenting any changes to your financial situation (e.g. recently unemployed), or any financial hardships that prevent you from paying your current mortgage payment. Before supplying such personal information, make sure that you’ve chosen a Los Angeles mortgage lender that is dependable, honest, and reputable.

Los Angeles Short Sales and Taxes
A Los Angeles short sale occurs when the borrower owes more to the bank than what they can sell the home for. The borrower works out a deal with the bank to sell the property for less than what they owe. Even though the bank dismisses the debt and calls it even, before 2007, borrowers had to pay government income taxes on the debt they owed. This changed, however, when the government passed the Mortgage Debt Relief Act of 2007.

Under this program, borrowers do not have to pay taxes on short sales that occur from January 1, 2007 to December 31, 2009. In 2010, however, it is speculated that borrowers will have to pay taxes on the debt. Shorts sales on vacation or investment homes may receive tax breaks. Contact your financial advisor for the latest information on Los Angeles short sale tax implications.

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