Knowing your short sale seller’s rights can be tough when you don’t have the dedicated experience of Short Sale Cooperative’s experts. We’ve put together a brief guide below to help explain what the short sale rights for sellers are.
Short Sale Representation: The seller has a lot of control over how their house is sold. That control includes the ability to designate someone to handle the selling negotiations, and the seller goes with anyone they wish to choose. The bank or lender doesn’t choose who represents the short seller, and they can even choose to forgo representation (although that’s not advised). Furthermore, the seller retains the right to showcase the property to anybody. The seller is not compelled to display the house to anyone at the lender's request.
Selling Price: It’s the homeowner's decision to pursue a short sale, and they’re not obligated to do so. Lenders do, however, play a key role in the entire process. After all, any short sale must, in the end, be approved by the homeowner's lender. Under the Home Affordable Foreclosures Alternative (HAFA) of 2010, mortgage lenders must allow homeowners to sell their houses through a short sale—when they meet certain requirements. These requirements apply when a lender refuses to modify a homeowner's loan. The lender must specify the price at which it is willing to authorize a short sale under the guidelines. The seller has 14 days under HAFA rules to figure out whether to agree to a short sale on the lender's terms. The seller is still in charge of the short sale, and even if an offer matches the lender's pricing conditions, the seller maintains the power to reject it.
Federal Taxes: On Form 1099-C, the Internal Revenue Service requires taxpayers to disclose forgiven debt that can be taxed as income. The difference between the mortgage balance and the selling price is used to calculate the debt. However, the Mortgage Debt Relief Act of 2007 exempts homeowners from paying the tax if their house is a qualifying primary residence and is sold to prevent foreclosure. If the short sale occurs during a bankruptcy, the forgiven debts are not taxable income as well. Even though the debt is not recorded as income, it must be reported on IRS Form 983, which must be attached to a tax return.
State Taxes: Short sale sellers may not have to pay taxes on short sales in certain states. When a taxpayer has a loss or no gain from a short sale transaction in California, they have the right to avoid tax withholding. As a result, unless the seller has equity in the house that will not be remitted to the lender, taxes needn’t be paid. Any money generated from a short sale is subject to taxation, although there are several exceptions. If the entire transaction price is less than $100,000 or the buyer is purchasing the property as part of a foreclosure, no tax is due. Furthermore, when the sale is a bank serving as a trustee, there is no tax obligation.
We hope this short guide has helped to illuminate the many short sale seller’s rights one is entitled to. Short Sale Cooperative will work to make sure these rights are honored at every step of the way.