Long Island & NYC
Short Sale Lawyer

When keeping the home is no longer the plan, a voluntary sale — or a short sale on an “upside-down” property — can preserve your equity, resolve the mortgage, and end the foreclosure on your terms rather than the bank’s.

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ExitForeclosure on your terms

Short sales and voluntary sales — an illustrated overview

Preserve Your Equity & Resolve the Mortgage

Sell on your terms — and walk away with what the home earned you

If the client has equity in the property and cannot afford the regular payments necessary to retain it, a voluntary sale — pursuant to a contract of sale — is often the solution.

If a homeowner has decided that their best option is to voluntarily sell their property, a voluntary sale can save for the client the equity in the property that would be realized upon such a sale. A short sale is a voluntary sale in a situation where the bank that holds the mortgage agrees to take less than the full payoff in full satisfaction of the mortgage — commonly sought by a homeowner who wants to sell but whose house is “upside down,” where the mortgage balance exceeds the fair market value of the property. Our office can help you negotiate a short sale, since that negotiation can be involved, with the bank asking for information and documentation to support the request.

Because a foreclosure action creates deadlines and pitfalls that are not present in a regular sale, a client needs proper representation when selling a house that is in foreclosure. There are issues at both the contract and closing stage that must be resolved for the foreclosure action to be properly resolved upon a sale. If the client is selling while protected by a Chapter 13, there are additional considerations essential to properly evaluate.

Homeowners weighing a voluntary sale of their Long Island home

Foreclosure & Sale Options

Settlement Conferences

Answering the Complaint

Section 01

Short Sale Requirements

Many voluntary sales in foreclosure and pre-foreclosure situations are “short sales” — giving the mortgage holder less than its full payoff — and they require careful coordination between a motivated buyer, a willing lender, and a well-drafted contract.

Many of the voluntary sales that proceed in foreclosure and pre-foreclosure situations are short sales, which give the mortgage holder less than its full payoff based on the inability to sell the house for enough to satisfy the full mortgage. Short sales require a negotiated settlement with the mortgage holder, which needs to be convinced that it should quickly agree to a short payoff. They also require the drafting of a real estate sales contract containing special provisions to protect the homeowner.

A short sale requires that the homeowner have both a motivated buyer — one willing to wait while the homeowner negotiates a short-sale agreement with the lender — and a lender willing to agree to the short payoff. Because a short sale requires this coordination, it is not always easy to proceed with a third-party buyer; often the short-sale buyer is friendly with the homeowner and motivated by the goal of helping them. If you are considering a voluntary sale, our office can also assist by recommending real estate brokers who specialize in selling under these conditions and who would charge a discounted commission.

What a Short Sale Needs

Three moving parts have to line up

A short sale only closes when the buyer, the lender, and the paperwork all cooperate — here is what has to be in place.

A motivated buyer willing to wait through negotiations

A lender willing to accept a short payoff

A sales contract with provisions protecting you

A broker experienced in distressed sales

Is your home “upside down”?A short sale can resolve the mortgage without a foreclosure judgment — find out how in a free, confidential review.

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A fresh start for the whole family

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Section 02

Friendly Sale & Friendly Short Sale

A sale does not always mean leaving for good. When a friendly ally buys the property, the homeowner may be able to rent it — and eventually buy it back — turning a sale into a path to keep the home.

A real estate deal to sell the property brings the loan current, since the arrears would be paid off in full at closing. Usually a sale is a non-retention option — the property is no longer a long-term home once it is sold. However, where the homeowner has friendly allies, they could purchase the property in their name and, after purchase, allow the homeowner to pay rent for a period of time until the homeowner restores their credit sufficiently to buy the property back.

Where there is still equity in the property, this retention option is a regular real estate deal. But where the property is upside down — the mortgage balance exceeding fair market value — a short sale becomes possible. The short-sale buyer would usually make an offer below fair market value, often on terms based on distressed-property pricing. If the homeowner eventually purchases the property back, they will have essentially erased much of the arrears, interest, and costs due to the default.

Distressed Pricing

How a friendly short-sale offer is set

Offers typically come in at least 10% below fair market value.
A steeper discount often reflects wear and tear, lack of updating, or damage requiring extensive renovations.
A friendly buyer can let the homeowner remain in possession — making it a retention option.

If the homeowner later buys the property back, much of the arrears, interest, and default costs are effectively erased.

Section 03

Voluntary Third-Party Sales & Short Sales

A voluntary sale is controlled by you — not an auctioneer. Whether the property has equity or is deeply upside down determines whether it is a straightforward sale or a negotiated short sale with the lienholders.

You Control

Voluntary vs. auction

A voluntary sale is conducted and controlled by the property owner — unlike an involuntary foreclosure auction.

Full Payoff

Regular third-party sale

No lender agreement is needed as long as the lender receives a full payoff and all liens are paid or resolved at closing.

Vacate

Non-retention option

A sale to an unallied third party is a non-retention option — the owner almost always needs to vacate.

First Lien

Short sales are simpler

A short sale is much simpler with no secondary liens — each lienholder getting less than full payoff must agree.

Voluntary Third-Party Sale

Enough equity to pay all liens

A voluntary sale of the property does not require a formal agreement with the lender, as long as the lender receives a full payoff at closing and all other liens or encumbrances are paid and/or resolved. A voluntary sale differs from an involuntary sale at a foreclosure auction in that it is conducted and controlled by the property owner. A sale to a third party is considered a non-retention option because the owner almost always needs to vacate after selling; a sale to a friendly party, by contrast, can be a retention option if the friendly party allows the owner to remain in possession. In a regular voluntary sale there is enough equity to pay all liens in full, and any profit beyond necessary closing expenses goes to the property owner.

Voluntary Third-Party Short Sale

Negative equity — lienholders must agree

A third-party short sale happens where, unlike a regular sale, there is negative equity in the property and lenders must allow a lessened payoff to close. It is one of the most common non-retention options, and at the end the homeowner turns over possession to the third-party buyer, who is usually looking to invest in or possess the property. Because more is owed in liens than the proceeds can pay, agreements are needed with any lienholder receiving less than a full payoff — especially the first-position lien, which is usually the main mortgage. A short sale is much simpler with no secondary liens, but to the extent they exist they can be dealt with. Where liens are very upside down, they may allow the closing for significantly less than owed as long as they are convinced they received the best, or at least a reasonable, deal under the circumstances. If there are multiple liens, they all need to agree to a lessened payoff — or other terms that let them release their liens — for the sale to proceed.

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Section 04

Deficiency & Debt-Forgiveness Taxes

When a lender accepts less than it is owed, two questions follow: will it come after you for the shortfall, and will the IRS treat the forgiven balance as income? For most homeowners in foreclosure, both concerns are manageable.

Typically, the lenders agreeing to lessened payoffs in a short sale also agree not to pursue a deficiency — the difference between what they were owed and what they accepted. Securing that waiver in writing is a central goal of the negotiation, so the sale closes without leaving you exposed to future collection on the shortfall.

Such forgiveness, while common, raises a question of whether the former property owner would be on the hook for “debt-forgiveness taxes” to the IRS, which regards the forgiveness of debt as a taxable event — unless the transferor is insolvent, or was rendered insolvent by the transaction. Most homeowners in foreclosure can show that they are insolvent, and therefore this potential tax is not usually an issue.

The insolvency exception.

The IRS treats forgiven debt as taxable income — but not to the extent the taxpayer was insolvent immediately before the forgiveness. Because most homeowners in foreclosure are insolvent, the forgiven portion of a short-sale balance is often excluded. We coordinate the deficiency waiver and the tax question together, so the relief you gain on the mortgage is not lost to an unexpected tax bill.

Worried the bank will still come after you?We negotiate deficiency waivers and weigh the tax picture — so a short sale actually ends the debt. Free review.

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Section 05

Procedures for a Sale or a Short Sale

Whether there is equity (a regular sale) or negative equity (a short sale), the mechanics are largely the same — with one key difference: a short sale adds a lender agreement and a formal listing period.

List the Home

Market the Property

Both a sale and a short sale need a listing to find a buyer — a short sale requires a formal listing for at least 60 days.

Contract Stage

Negotiate the Terms

Assemble payoffs for all liens, order a title report, and — in a short sale — negotiate a short-sale agreement with the lender.

Closing

Deed & Lien Releases

Deliver a deed from owner to buyer and obtain satisfaction and release of lien based on the full or agreed short payoff.

Whether the owner pursues a sale (where there is equity) or a short sale (usually where there is negative equity and the mortgage is upside down), the procedures are similar. They differ in that a short sale requires a short-sale agreement with the lender, who must accept less than the full payoff to close; in a regular sale no such agreement is needed since the lender receives the full payoff. In both, there needs to be a listing of the property to find a buyer. With a short sale, this is a formal requirement for at least 60 days, because the lender needs to know that the potential short-sale buyer is competitive and the highest possible purchaser for a property that was marketed to the public.

In both a sale and a short sale, the following are needed: payoffs for all liens, a title report, a deed from the owner to the buyer, and a satisfaction and release of lien from the lender — based on the payoff of the full mortgage debt in a regular sale, or the agreed short-sale amount in a short sale. The title report is essential, since secondary liens — if they are substantial and not totally upside down — can get in the way of a short sale.

Selling while protected by a Chapter 13.

If the client is selling the property while under the protection of a Chapter 13 case, there are additional considerations that are essential to properly evaluate before proceeding — the sale must be coordinated with the plan and, where required, with the Bankruptcy Court. Our practice across negotiations, modifications, bankruptcy, and litigation lets us align the sale with whatever else is holding back the foreclosure.

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Section 06

Regular Sale vs. Short Sale vs. Foreclosure

There is a world of difference between selling on your own terms and losing the home at auction. Here is how a regular voluntary sale, a negotiated short sale, and a foreclosure sale compare.

Regular / Short Sale

Foreclosure Auction

Who controls it

Voluntary SaleYou do owner conducts & controls

ForeclosureThe court an involuntary auction sale

Equity outcome

Voluntary SalePreserved profit goes to the owner

ForeclosureAt risk auction rarely maximizes value

If upside down

Voluntary SaleShort payoff negotiated with lienholders

ForeclosureDeficiency risk lender may pursue the shortfall

Lender agreement

Voluntary SaleRegular: none short sale: required

ForeclosureNot applicable lender is the plaintiff

Best suited for

Voluntary SaleA planned exit with a buyer

ForeclosureThe outcome to avoid

Regular Voluntary Sale

Enough equity to pay every lien in full — you control the timing, and any profit beyond closing costs is yours.

Negotiated Short Sale

An upside-down property sold with lender agreement to a lessened payoff — typically with a deficiency waiver.

Friendly Sale & Buy-Back

An ally purchases the home and lets you rent — a retention path back to ownership once credit recovers.

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Section 07

Why Sell With Our Firm

Our experience negotiating options for distressed property lets us determine, with you, the strategy that best protects your interests — from the beginning of your matter and again if your situation changes.

Our experience with negotiating options regarding distressed property allows us to best determine with you a strategy that protects your interests. We can help you decide whether a voluntary sale is a good option — and, if so, whether it should be a regular sale or a short sale, and whether it should be a third-party sale or a friendly sale. The Law Office of Ronald D. Weiss, P.C. has helped many homeowners by representing them in real estate deals, especially when selling to prevent foreclosure. Often a voluntary sale is the client’s ultimate goal while they pursue other legal options to hold back the foreclosure process.

Our concentrations in negotiations, modifications, bankruptcy, and litigation as they apply to distressed property allow us to assess your options not only at the outset of handling your matter, but also later on — if your situation has changed and you wish to change your plans and pursue alternatives. From our office in Melville, Long Island, we can discuss your short sale and voluntary sale options in greater detail.

Law Offices of Ronald D. Weiss, P.C. — Melville, Long Island

Preserve your equityA voluntary sale on your terms captures the value a foreclosure auction would waste.

Negotiate the short payoffWe convince lenders to accept less — and to waive the deficiency.

Regular, short, third-party or friendlyWe match the sale structure to your goals — including a path to buy back.

Foreclosure & bankruptcy experienceNegotiations, modifications, and Chapter 13 all coordinated with the sale.

Our consultations are free — the advice may be invaluable.

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Long Island & NYCShort Sale Lawyer