Short Sale Income Property or investment property

Certified Distressed Property Expert
Certified Distressed Property Expert

Short Sale Income Property or investment property

I had an owner of some income property ask me If I have completed a Short Sale in the Past on investment property.   The Answer is Yes, however not all lenders may allow this so it’s a case by case situation.

When should I start the Short Sale process on my Income/ Investment property?

My recommendation is to actually start a Loan modification as soon as you know that you are unable to make your payments.  I have heard some lenders will not allow you to request a modification unless some payments are missed.  I can never advocate anyone to miss any payments in order to get a modification started as it will have a negative impact on your credit score.   Speak to your account and/or attorney.  These are the people best qualified to answer your questions.   You have to evaluate your situation and make the determination it that is the best choice for you going forward.

One of the other common question I have been asked should I use my retirement to keep my payments current until a modification is worked out.  We have to look at what your goals are. Do you have goals to try to keep the property because you maybe can afford it later or is this property more than you can handle?  My experience has lead me to see a real negative when clients use retirement funds to avoid foreclosure.  The most common issue is using the funds before you are of age and getting hit with a fair amount of tax.  The second common issue is most of my clients are getting up near retirement age and they don’t have time to rebuild the nest egg that has taken decades to build in most cases.  Now it’s not been all bad because some people were able to get a modification and only needed to do it for a few months.   I think the question you need to ask yourself what financially makes the most sense for you.  When you get into a short sale every situation is so unique.

What other professionals are recommended on a Short Sale of Investment property/ Income Property.

I always recommend a Real Estate Attorney to review your loan documents to see what recourse that the lender may take after you for the loan.  It’s also very important that if you do get the approval of a short sale you have your attorney read and explain the language in the short sale approval letter.  The short sale approval letter should very clearly state how they will report the sale on your credit.  The language in that short sale letter will also be key if they plan to reserve the right to go back after you, so a Real Estate Attorney is going need to review the paperwork for the short sale of Investment and Income Property.

The Second, and probably the most important, will be your CPA/ Tax Professional as the sale of a short sale will impact your tax situation.  They are the only ones who know your personal tax situation.    I wish I could be more specific however no two people are the same, they might be similar however I always suggest working with your CPA/ Tax Professional before and during a short sale.  They should be able to explain what tax liability is.

It’s very important to act before your Investment/ Income property goes into Foreclosure.

In my personal experience tenants can be tricky if they see a Notice of Default posted or worse yet a Notice of Trustee Sale.   If you have reached this point you need to reach out, so we can try to get the sale postponed!  I have seen a few cases where the occupant figured that if the owner wasn’t making the payment that the owner wouldn’t have the funds to evict them.  This will obviously add to your hardship letter, however, it’s been in my opinion, very hard to get an occupant to pay once they see the property is in Default or going to Trustee Sale.  The other fear occupants have is you don’t have the money or they don’t think the owner will be able to pay the deposit back.  So at times, I have seen occupants hold back the amount of the deposit for a month because they fear they will have to move without the deposit. The best advice I can give on this is try hard not to wait until either a Notice of Defaults (NOD) or a Notice of Trustee (NTS) gets posted on the property.  I also understand in some situations the reason the property enters default is caused by tenants.

What do you do when the Modification is not enough for you to make it work or the terms of the agreement are only for a short period of time?

This is where you should be able to answer that question, if you know that the modification will not work or the length of the modification is only going to postpone the inevitable, you will have to make the financial decision that is best for your situation.  I have seen where some people were able to hold on to the point when the market went up where they could just squeak out of the property and still have fairly good credit because they were able to Avoid Foreclosure and the Short Sale.   I have seen some cases where it worked out and others that sadly were not able to be saved.

Over All, I would keep asking people questions, get your answers, work with professionals who have the experience and can help through this difficult time. I had once heard from someone that we don’t have distressed property just distressed homeowners.  I have had a family member that attempted a short sale and it failed, however, they were able to keep the rest of the bills current save up a down payment and now have purchased another home!  It’s important to remember that years do pass and even if a short sale fails, you keep working on your credit to buy back into our housing Market.  Those that completed short sales a few years back now are able to buy again so don’t lose faith.

Do all lenders treat short sales the same?

The simple answer is no as they vary from lender to lender and even vary with the same lender due to the fact they may be servicing for different lenders.  It’s important for you to know on a short sale some lenders want to give you the list price, and they may have additional benefits when you use the specific programs they have.  If you are about to go to the sale and you need to list your property as a short sale to postpone the sale please reach out asap as some lenders require a few days’ notices so they can stop the sale.  If you wait for it just may be too late, be proactive.

If you have a HELOC (Home Equity Lines of Credit) and it’s going to reset, please work on trying to refinance or get that modified before it adjusts to a point where you become late on payments.  I have seen numbers floating into the millions of HELOC’s set to rest between now and 2018.

If you would like to talk with JoAnn Outland or myself about a Short Sale please reach us here at the office 805-481-3939.

My service area Includes San Luis Obispo County, and North Santa Barbra County

Short Sale Cities Service: Arroyo Grande, Atascadero, Avila Beach, Buellton, Cayucos, Cambria, Grover Beach, Guadalupe, Lompoc, Los Alamos, Los Olivos, Los Osos, Morro Bay, Nipomo, Oceano, Paso Robles, Pismo Beach, Shandon, San Luis Obispo, San Miguel, Santa Margarita, Santa Maria, Santa Ynez, and Templeton

Author James Outland Jr.


Leave a Comment