Short Sales-What your bank doesn't want you to know

Honolulu
With rising foreclosure rates, and a sagging economy, more and more Island homeowners are finding that their mortgage is higher than the value of their home, and have lost all or most of the equity in their property.

They can continue to pay the mortgage, as they are obligated to, or they may choose an option previously reserved for those in the know about how mortgages really work. In the real estate industry, it's called a short sale, sometimes called an upside-down sale.

A short sale is a broad term used to define the fact that a home is valued at less than the total indebtedness of the property. When a homeowner (or investor) finds themselves in such a situation, there are typically four ways to resolve the situation, all of which requires an understanding of the process by the applicant, and proper preparation of records. The solutions are usually

• Renegotiation of terms. The bank may "stay" or extend payment for a period of two or more months, adding those payments to the end of the loan, or change the rate to make payments a little more affordable.

• Grant another loan. The bank may issue an unsecured loan in order for the homeowner to sell the property off, owing the difference to the bank in what will now be unsecured, or based on other assets.
• Forbearance. In extreme cases, the bank may just plain "eat" the difference or loss taken on a short sale. Careful though, they will probably send you a 1099 tax form at the end of year, claiming they "gifted" you the difference in writing off the loan, and you may end up owing taxes on the gift. This may also affect your credit status.
• Deed in lieu of foreclosure. The Bank may choose to take the property back, and either hold it (REO) or sell it off for what they can.

The process to file for a short sale is no harder than buying a home or applying for a mortgage. Do expect to pay some type of flat or percentage fee up front to have someone review and prepare your case for you. Oh, there is a fifth option. Foreclosure.

Hawaii Real Estate Professionals sponsors workshops including how to do a short sale. Call 487-9925 to register. Free to the public, licensed real estate agents must pay an entrance fee.

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