MERRITT LAW, P.A.

Many important questions arise regarding short sales, deed in lieu of foreclosure and mortgage modification.  Some of those questions are addressed hereinafter.  A short sale occurs when a prospective purchaser of your real estate makes an offer to buy the property for less than the amount of the mortgage on the property and the lender agrees to accept an amount that is less than the amount of the mortgage.  A short sale allows you to sell the house for less than the mortgage amount to a willing buyer.  Whether the lender writes off the difference or the lender requires you to pay the difference between the original mortgage and the amount received from the short sale is critically important for you to know before you consummate the short sale.
If the lender accepts the amount the buyer offers to pay to purchase the property, then you could have a gain on the sale that is reportable as income to the Internal Revenue Service.  However, whether the lender notifies the IRS by issuing a Form 1099 to you, and even whether the IRS expects you to pay tax on the amount that the lender writes off, often can be negotiated.  Furthermore, even if the lender will not agree to forego issuing a 1099 to you, it is possible for you to write off the amount reported on the 1099 as a loss for income tax purposes, which results in "wash sale" or no tax liability for you.  You must consult with your tax adviser and/or a qualified Certified Public Accountant.  This firm does not provide tax advice to its clients, but it does work clients and their financial advisers.
Fees for realtors are paid by the lender.  Although lenders often will advise you that they will accept a short sale only on your primary residence and not on investment property, that typically is not necessarily true.  You can negotiate a short sale for investment property as well.  Fannie Mae and Freddie Mac recently announced requirements that require lenders to pay up to six percent (6%) commissions to real estate agents.  Lenders that used either agency in placing the mortgage may not require real estate agents to reduce their commissions below six percent (6%).
Lenders typically require that you provide certain information as part of a package of information that they require to process a short sale, mortgage modification or even deed in lieu of foreclosure.  An example of some information that lenders often require to proceed with a short sale follows:  

1.    Complete an income and expense form.  For those of you familiar with accounting concepts, it is similar to a combination balance sheet and income statement.
2.    A written explanation of the hardship that has occurred and why you cannot continue to pay the mortgage.
3.    Copies of your last two years income tax returns.  
4.    Should you own securities or mutual funds, copies of statements from your broker.
5.    Copies of all bank account statements.

Although the foregoing list is not comprehensive and some lenders may require additional information, the list is the typical minimum that a lender will require.  When you submit a short sale, the lender may contact you for more information or may make a counteroffer.  If the short sale does not go forward for whatever reason, the lender typically closes the file and you must begin again with another offer.  Of course, you can use most of the information that you have submitted with prior unsuccessful short sale attempts, e.g., hardship letter, tax returns, etc.
A deed in lieu of foreclosure differs from a short sale.  It can be done prior to the lender filing suit for foreclosure or shortly after it has done so.  However, just as with a short sale, a deed in lieu of foreclosure must be negotiated with the lender.  A deed in lieu of foreclosure occurs when a mortgagor transfers ownership in the subject property to the lender.  A second mortgage on the property will complicate the matter. 
Some financial institutions will consider a mortgage modification.  A mortgage modification may consist of lowering your interest rate, extending the term of your loan and even further lowering your payments.  In some instances, the lender may actually reduce the amount of your loan principle. 
If you have a second mortgage on your property, resolving it must be negotiated.  Unless the second mortgage is held by the same lender that holds your first mortgage, negotiating with the lender who holds the second mortgage requires more work, but it too can be done.  Although legal fees for work on the first mortgage may, in some limited cases be paid (in full or in part) by the lender, legal fees for second mortgages typically are not paid by the lender and that will result in additional fees that you must pay.
Should you have any questions, please feel free to contact this firm at 941.953.4140 to schedule an office consultation. 
The firm does not provide legal advice via a telephone call.