Has your dream of owning your own home in Tennessee turned into a nightmare? Are you behind on your mortgage payments or facing imminent foreclosure? If you are, arrange at once to speak with a who will explain your legal options and rights.
In 2022, approximately nine percent of the homeowners in the United States – about 4.5 million – are “underwater,” which means the value of their homes in the 2022 market is less than the amount owed on their mortgages.
If you’re underwater, and if you are behind on your mortgage payments, your options include a short sale and a foreclosure. With either of these choices, you will end up losing the home. The choice that is right for you will depend on your personal financial situation.
What is a short sale, and what can a do for you? If you’ll read this brief discussion of foreclosures and short sales, you will find answers to these questions, but if you are underwater and behind on mortgage payments, you need a lawyer’s personalized advice.
How Does a Short Sale Work in Tennessee?
A short sale happens when the owner of a property voluntarily sells that property for a figure that is substantially below what the property owner owes on his or her mortgage loan.
In a short sale, for instance, a property may sell for $300,000 even if the owner owes $400,000 on his or her mortgage. Additionally in a short sale, the lender receives all of the proceeds from the sale, and the property owner still must pay off any deficiency – $100,000 in this instance.
What is Required for a Tennessee Short Sale?
Before a short sale property can go on the market, the mortgage lender must be presented with documentation that justifies the sale as a reasonable financial option, and that lender must approve the homeowner’s choice to proceed with a short sale.
Mortgage lenders don’t want to lose money in short sales. A lender may not agree to a short sale and may choose another option.
When lenders consent to short sales, potential purchasers must negotiate the transaction with the owner, and a purchaser then must seek the lender’s approval for the final purchase price.
How Does a Foreclosure Begin?
A foreclosure is initiated by the lender. It is the legal seizure of a property when a property owner falls too far behind on his or her mortgage payments. If you are a property owner, and especially if you are a homeowner, you do not want a foreclosure.
Federal law requires mortgage lenders to wait until a property owner has been delinquent on a mortgage loan for at least 120 days before initiating the foreclosure process. This gives property owners an opportunity to apply to lenders for loss mitigation or choose the short sale option.
What is Loss Mitigation?
For many Tennessee homeowners, loss mitigation may be their best option for dealing with a foreclosure. If you apply to your mortgage lender for loss mitigation within the 120 days before a foreclosure begins, the lender might postpone the start date of the foreclosure.
Loss mitigation is how mortgage lenders help property owners who are delinquent on mortgage payments. When you apply for loss mitigation, the terms of your home loan may be modified, you may be approved for a short sale, or the deed may be transferred back to the lender.
Could You Be Evicted?
When the foreclosure process starts, the legal control of the home is returned to the lender. If the homeowner and any occupants of the home have not departed from the property, the mortgage lender may have them evicted.
Short sales are a practical way for homeowners to respond to a foreclosure and escape an unfavorable financial situation. Homeowners lose their homes when they choose the short sale option, but they are relieved of mortgage debt.
Does a Short Sale Damage Your Credit Rating?
Given no other options, it is better to lose a home with a short sale than through a foreclosure. Short sales do not damage credit ratings, but a foreclosure may remain on your credit report for up to seven years.
After a short sale, you may still be qualified – if you meet several requirements – to buy another home, but if your mortgage lender initiates a foreclosure, you will not be eligible to buy another home for at least five years.
How Will a Tennessee Short Sales Attorney Help You?
If you are a homeowner in or near the Kingston area, and if you’ve missed a mortgage payment, or if you have been notified about a foreclosure, schedule a consultation with a Kingston short sales attorney as quickly as possible. You should have an attorney’s advice from the beginning.
Your attorney will thoroughly examine your financial situation and help you decide if the short sale option is the best option for you. If it’s not, your lawyer will explain your alternatives.
But if the short sale option is right for you, a Kingston short sales lawyer will help you obtain the consent of the lender and guide you through each step of the short sale process.
Foreclosure, bankruptcy, and short sales are the few options for homeowners seeking relief in Tennessee. And with several options that are hard to differentiate, you are likely to make a few mistakes. But with the guidance of family law attorneys in Kingston, you will quickly figure out what to do and know what to expect.
All information regarding your home’s value and finances are critical requirements for a short sale. It is, however, necessary to understand what it is all about to set you straight on the choice you are about to make.
How Does a Short Sale Work?
Homeowners who cannot make further payments and are upside down in their mortgages can explore short sales. As much as the lender is not obliged to agree to the short sale terms, they are more likely to accept if you have other assets to pay off the debt.
But every homeowner hopes that their lender accepts the money from the short sale in satisfaction of the mortgage debt. If they disagree, they might file a lawsuit to recover the difference between what you raise from the short sale and what is owed on the mortgage.
What are the Tax Implications of a Short Sale in Tennessee?
Getting an acceptance from the lender might seem like a dream come true for any homeowner struggling with debt. However, it is critical to be aware of the tax implications. Once they accept less than what is owed, the lender has a legal obligation to submit a 1099-C form with the IRS.
The debt might be discharged after the short sale, but you will remain with a tax obligation. For instance, the amount of debt discharged from the short sale is considered taxable income. Your debt discharge income (DDI) will be $100,000 if the house is sold for $400,000, and the mortgage debt was $$500,000.
How Does a Short Sale Compare to a Foreclosure?
Unlike a short sale where the homeowner is involved in the sale of the house, a foreclosure involves the lender repossessing your home. After that, they will try selling it to recover the balance of what you owed.
One of the similarities is that they can try to recover the difference from you if the sale doesn’t raise the expected amount. Foreclosures also come with specific tax implications on the homeowner, similar to a short sale. Tennessee real estate attorneys can help you compare and choose the right one.
How Does Bankruptcy Compare to a Short Sale?
In bankruptcy, people struggling with debt get the advantage of keeping their homes in Tennessee. You neither have to sell the house nor give it up to the lender. If you can make some mortgage repayments and would love to keep your home, Chapter 13 would be ideal.
Homeowners who are uncertain of their ability to stick to a repayment plan can opt for Chapter 7 bankruptcy. Here, you will keep your home and a few other exempt items. The extra property might be liquidated to repay creditors who cannot claim the difference from you.
How Soon Can I Buy Another Home After a Short Sale?
Among the most significant benefits of a short sale is that it doesn’t damage your credit score like a foreclosure would. This means that you can buy a home sooner than you would be able to if your home were foreclosed. But generally, government-backed home loans are more forgiving than conventional home loans.
A day after a short sale, you could qualify for another home loan under the non-QM programs. Notably, the credit qualifying requirements vary, but the underwriting criterion is flexible. However, you might have to deal with more stringent requirements such as a substantial down payment and higher mortgage rates.
What are the Conditions for FHA Loans After a Short Sale?
FHA loans are popular among people that have lost their homes through a short sale or foreclosure. It is known to have ‘no waiting period’ but has a few strict caveats. You can access the home loan immediately if:
- You paid all the installments on time in the last 12 months preceding the short sale
- You were not in default of the previous loan at the time of the short sale
If your circumstances don’t tick the above boxes, you might have to wait three years before qualifying for an FHA loan. The waiting period begins on:
- The date the short sale took place
- The date the FHA paid the claim on the short sale
However, you could be exempted from the waiting period if extenuating circumstances led to the mortgage default. Kingston real estate attorneys can help you explore these exemptions if you went through:
- A job loss that involves a primary wage earner
- Death of serious illness of a close family member, usually related to the primary wage earner
- Divorce in certain circumstances
Why Do I Need a Kingston Real Estate Attorney?
It is easy to view legal representation as unnecessary when facing financial hardships. You might decide to save a few dollars by not hiring a real estate attorney in Kingston, TN, but the repercussion of making the wrong legal decisions can cost you way more.
Homeowners have several options for fixing a debt situation, but all alternatives do not have the same outcome. What works for another person might not automatically work for you because the circumstances and the end goals are different for different people.
Attorneys Bringing Knowledge and Compassion to Your Case
The answer to whether a short sale is the best option or not depends on your exact circumstances. A blanket answer would be misleading and can land you in difficult circumstances.
Closer evaluation of the guidelines on short sales can ease the confusion and bring clarity. A seasoned attorney’s knowledge, expertise, and experience can help you decide on what to do. Get in touch with the professionals at Davis Law Firm to get clarity.
What Else Does a Tennessee Homeowner Need to Know?
You should also have a lawyer’s advice regarding the tax consequences of a short sale. The difference between the transaction amount and any outstanding balance on the mortgage will be considered taxable income by the Internal Revenue Service.
A Tennessee short sales lawyer will protect your legal rights and explain the effect of a short sale on your taxes and credit rating. If you have a better option, your attorney will help you find it.
A short sale property is usually sold “as is,” as neither the lender nor the owner have an incentive to invest more in the property. Short sale buyers expect bargains, so they usually take these properties “as is” and make few if any demands about repairs to the property before the closing.
What Should You Remember Regarding Short Sales?
A short sale helps you avoid a foreclosure and its negative consequences. It lets you settle your mortgage debt for less than you currently owe, and it does not damage your credit rating.
Should you miss a mortgage payment, or if you’ve been notified about a foreclosure, schedule a consultation with a short sales attorney near you. Your attorney will answer your questions, offer you sound and personalized legal advice, and guide you through the process of a short sale.
