In a normal real estate transaction where you have equity in your home, when the deal is done, you have a lump of cash left over after all of the closing costs are paid.
A short sale is different. Since you owe more than the house is worth, your lender will need to approve all of the fees associated with the sale. The monies that come from the buyer are paid to the various parties as long as your lender agrees. Technically, seller costs are still seller costs.
In most short sale transactions, the reason the home owner is selling is because they just don’t have any money, and can no longer afford to maintain the cost of their home, so there’s no need to worry about paying fees to anyone.
On the other hand, there are inherent costs that you may not have considered.
Credit
Your personal financial credit score is going to suffer. There’s simply no way around it. When the short sale is complete, you will have a negative mark on your record. The initial damage is done by missing payments on your credit accounts. Credit cards, car payments, student loan deferral, and other accounts that fall behind affect you on a month to month basis.
Taxes
You will need to speak with a CPA to determine your tax liability from a short sale situation. When you sell a home for less than it is worth, or when any creditor forgives an amount of debt, that forgiveness becomes reportable income to you. Whether or not you are required to pay taxes on the amount forgiven isn’t something I know the answer to. It’s something you must talk about with your CPA.
Deficiency
Even though we have what’s known as an Anti Deficiency Statute in Arizona, which protects you from a judgment for the balance of an unpaid loan, the conditions that are required to qualify for this are many, and you must consult with a competent attorney before you enter into an agreement with your lender. Don’t let that word attorney frighten you. Most good short sale consultations will cost you less than the cost of a home inspection, which you paid for when you purchased the home to help you identify any unforeseen material defects that could be costly.
Don’t skip this one. Spend a few hundred dollars for a good service to help you understand the legal implications. Let your competent and experienced real estate agent work on getting the approval from the bank, and leave the legal review up to your attorney. The short sale negotiation process is more about the numbers of the transaction and less about the legalities.
Emotional
You are not alone. The emotional cost is sometimes devastating. Keep in mind that you have someone on your side who is your advocate and advisor to help you through the process. Letting go of something that’s hurting you in the long run may be the best financial move you could make.