The latest buzz words in the financial press are short sale. Just what is a short sale?
Simply stated, a short sale occurs when the mortgage holder on a property agrees to accept less than what they are owed in order to facilitate a sale of the property. You may have heard the term “upside down” when referencing a homeowner that owes more on a property than it is worth. These are the circumstances under which a short sale would be pursued.
Many real estate agents have become familiar with the short sale process, and may even offer to do the paperwork and make a presentation to your lender on your behalf. Every lender will have differences in how they handle short sales. In general, you will have to complete a package of forms which support the proposed sale price and that substantiates your financial hardship (inability to pay the current mortgage).
Short sales, once very rare, are becoming an everyday occurrence due to the recent collapse of home prices nationwide. Homeowners unable to pay their mortgage, and unable to sell due to their high mortgage balance, now have a plausible way out. If you are able to short sale your house, it will have a much lesser impact on your credit than if you lose your home in foreclosure. Short sales are a win-win for both you and your lender. Most lenders would much rather cooperate with a short sale than to go through the foreclosure process and end up with the project of selling the property.
An additional reason to pursue a short sale is that the amount of debt forgiven by the lender is not subject to taxes as long as you can claim the property as your primary residence. Prior to this recent change in the tax code, any amount of debt forgiven was considered income to you! Wow, can you imagine losing your home and then getting a big tax bill?
Short sales also provide a great opportunity for those in the market to buy. Of course, the biggest problem today for buyers is not finding good prices but obtaining mortgage financing. If you are a buyer and are interested in purchasing through a short sale, you should have no problem finding properties. You can either subscribe to a foreclosure data service that provides lists of pre-foreclosures or simply call a local real estate agent. Here is a link to a 7 day free trial
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