In my last column, we mentioned that due to the spectacular run up in prices in years past, the market is presently over priced.
A large number of people bought property on the high side with variations of 100% financing, ex: 80% - 20% or 80% and a second mortgage, etc. If you are one of the many in this situation and you need to sell, I may have another option for you.
It is called a "short pay." A short pay is when you owe say $500,000 on a property worth $450,000 and the lenders accept the $450,000 as satisfaction of the debt. This practice is more common than most people think. Whether you have only a first mortgage or maybe a second mortgage, a short pay is not difficult to obtain. First, you should check with your lenders to inquire about their requirements for a short pay. If you have a first and second, approach the second mortgage holder first. First mortgage holders are reluctant to take the hit when there is a second mortgage in place. You will probably have to spend about $300 for a certified appraisal to prove your reduced value. In addition, inquire as to the fees a lender will allow you to pay on a short pay. Examples are realtor commissions, closing fees or buyers costs.
There is only one drawback. If the lender accepts your short pay from the above referenced example, the Internal Revenue Service will count that $50,000 as earned income. You need to think that through and/or contact your tax advisors.
Ric Cornelius is the Broker/Manager of Sand Key Realty Sales and Rentals, Inc. Sand Key Realty has three offices with 40 agents. One office is at 740 S. Gulfview Blvd., Clearwater Beach, 727-443-0032; the second office is at 2701 Gulf Blvd., Indian Rocks Beach, 727-595-5441; and the third office is at 309 Belleview Blvd., Belleair, 727-461-4200.
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