Short Sale Frequently Asked Questions: 

1.  Will I have to pay capital gains taxes if I sell a property as a short sale?
No. If your bank suggested that, they are ridiculous. Capital gains would indicate that you are in some way "better off" financially because of money you have made. In a short sale, you lose and owe money.

2.  We are about to buy a short sale from the bank and are wondering if the bank is responsible for ridding the house of mold or are we?
First of all, if you are buying a house from the bank, it's not a short sale. Second of all, in almost every case where there is a bank-owned property, it will be sold AS-IS. Check the verbiage of your purchase agreement with the bank (or seller). Any purchase agreement should contain a clause referencing who is liable for what. If you signed a purchase agreement that didn't reference the mold or "items required by the home inspection to be completed," then you will be liable.

3.  If I pay mortgage insurance and default on my loan, why wouldn't that cover the deficiency amount?
In some cases it will and in some cases it won't. It depends on the amount of the deficiency. Usually the mortgage insurance only covers a certain amount. Moreover, the lender will try to collect from you before they file a claim with the mortgage insurance company. The mortgage insurance is not there for your protection, just the lender's.

4.  We had a first and second loan and went through foreclosure. The first was paid off and we were told the second would be forgiven. Now a collection company is coming after us for the second, what do we do?
The bank will never forgive one dime of debt unless it is explicitly stated in writing and you have it reviewed and confirmed by an attorney. The fact is they probably lied to you verbally. You're only recourse now is to engage in a legal dispute against them or file bankruptcy.

5.  What are the implications of unpaid judgments?
Worst case scenario, your wages can be garnished.

6.  How long does the foreclosure process take?
Complicated question depending on what you consider the start of the "process" to be. Generally, the Bank will send an NOD (notice of default) to the title company and trustee. From that time it takes between 3-9 months for the house to go up for auction, during which, you can pay the delinquent amount to "cure" the foreclosure proceedings.

7.  Will I still have to pay taxes if I do a short sale?
This is a broad question depending on whether we're talking about property taxes or federal income taxes. You'll always have to pay extra income tax if the bank sends you a 1099 for the deficiency. SOMEONE will always have to pay property taxes. Whether its you or the lender depends on their policies and the specific agreement you reach while negotiating the short sale.

8.  I owe more than my home is worth. Am I eligible for short sale or is my only option foreclosure or bankruptcy?
Always consult your lender as to what your options are. They are usually short sale, deed-in-lieu of foreclosure (basically an accelerated voluntary surrender), and foreclosure. The banks like to prevent foreclosure when at all possible. They've even been known to lower people's rates and payments because of all the new defaults in '06 and '07. Either way, your first stop should be to get information from you lender on what options they provide.

9.  Does a good credit score help the seller trying to do the short sale?
Only inasmuch as their credit score will stay high as long as they don't make any late payments leading up to the short sale. Some lenders may call the deficiency a judgment though, which will hurt the score a bit.

10. Where can I get information on investing in short sales and foreclosures?
First of all, there is no magic listing place for short sales. If a seller has gone to the trouble of asking their lender if they can do a short sale and the lender has given them a verbal approval, then the short sale will show up much the same as any other property for sale, only it will take you five times as long to close it.

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