Kristen E. Johnson, Esq. is a seasoned real estate attorney with over 20 years of experience in New Jersey. She represents clients facing mortgage debt, foreclosure, and complex property transactions—including short sales.
If you’re exploring options to avoid foreclosure or buy a short sale home at a bargain price, this guide covers everything from the short sale process to legal insights only a professional can offer.
What Is a Short Sale?
A short sale occurs when a homeowner sells their property for less than the outstanding balance on the mortgage. The lender approves the transaction to recover partial losses, often forgiving the remaining mortgage debt. This solution is commonly used by homeowners facing financial hardship, job loss, or struggling with multiple debts.
Short sales can be a good deal for buyers but come with challenges:
- Properties are often sold “as is”
- Delays in the selling process
- Requirement of short sale approval from all lien holders, including home equity lines or second mortgages
Despite these hurdles, many homeowners prefer short sales to the foreclosure process, which can devastate credit and lead to a sheriff sale or REO property status.
How the Short Sale Process Works
Understanding the short sale work behind the scenes is critical. Here’s a simplified breakdown:
- Financial Hardship Demonstrated: The homeowner submits bank statements, tax returns, and a hardship letter.
- Listing Agreement Signed: A real estate agent lists the short sale property on the Multiple Listing Service (MLS) using comparable sales and a broker price opinion (BPO) to justify pricing.
- Offer Received: A buyer makes an offer—ideally a competitive short sale offer based on market value.
- Lender Review: The mortgage lender reviews the offer and issues a short sale approval letter.
- Closing: After the bank forgives the remaining debt, the home sale is finalized. The closing costs are detailed in a HUD settlement statement.
Timing varies. Most short sales take months due to lender negotiations, especially when many lenders or liens are involved.
Requirements for a Real Estate Short Sale
Not all homeowners qualify. Basic requirements include:
- The current value of the home is less than the balance owed
- A verifiable financial hardship
- A ready, willing, and able buyer
- No proceeds from the sale go to the seller
Some lenders may still consider a short sale even if mortgage payments are current. It’s especially important to act before a sheriff sale is scheduled.
Tax Implications of Forgiven Debt
When a bank forgives mortgage debt, the IRS may treat it as taxable income. A 1099-C form will likely be issued. However, protections such as the Mortgage Forgiveness Debt Relief Act may apply. Always consult a tax attorney to understand your situation.
Why Choose Kristen E. Johnson, Esq.
Kristen E. Johnson, Esq. combines deep legal experience with a client-centered approach:
- Skilled in short sale negotiation with lenders and lien holders
- Keeps listing agents and realtors involved and informed
- Meets with each client personally to assess short sale viability
- Legal fees are typically paid from sale proceeds, not out-of-pocket
A short sale involves much more than the average traditional home sale—it demands a legal expert familiar with New Jersey short sales, regulations, and lender protocols.
Legal Advantages of Early Attorney Involvement
Bringing in a lawyer early is crucial. Why?
- Lenders require a formal contract to begin the process.
- A lawyer helps convey hardship and fund allocation clearly.
- Critical forms—like the short sale application—must be flawless.
- Navigating deficiency judgments, multiple listing service issues, and lien complications requires legal insight.
New Jersey-Specific Regulations
New Jersey law protects homeowners in pre-foreclosure and regulates short sale transactions:
- Lenders must provide formal foreclosure process notices
- Legal timelines allow for negotiation and potential short sale
- Restrictions apply to realtor’s fees and other closing costs
Partnering with an experienced attorney ensures compliance and smoother transactions.
Buying a Short Sale in NJ
For buyers wondering how to buy a short sale in NJ, consider these key points:
- Use the Multiple Listing Service to find short sale homes
- Expect delays and prepare for an as is purchase
- Get pre-approved for a home loan in advance
- Hire a home inspector—these properties often lack updates or repairs
- Understand that the bank, not the seller, controls the deal
Facing mortgage payment struggles doesn’t have to end in foreclosure. A short sale can be a dignified exit strategy—if done right. Whether you’re a homeowner, real estate agent, or buyer, the short sale process is complex, time consuming, and filled with potential pitfalls. That’s why you need a legal ally like Kristen E. Johnson, Esq. to guide the way.