What is a Short Sale?
What is a Short Sale?
If you bought your home several years ago, you may find yourself in the unenviable and extremely difficult position of owing more on your mortgage than your home is actually worth. This problem is compounded if you have had to refinance your mortgage or even take out a second mortgage. When homes sell for less than the owner owes on the mortgage, it is called a short sale.
Even further exacerbating this dilemma is the current mortgage crisis in the
When you are considering a short sale, there are several things you need to do. First, you need to approach your lender. A short sale is not ideal for the lender either because they have to accept less money for the property than you owe them. However, lenders would probably rather recoup a large portion of their money through a short sale than have the property go into foreclosure. With a foreclosure, they have real estate instead of money, which can be hard to convert. So, a short sale may be in the best interest of everyone involved.
You have to prove to the lenders that you cannot pay your loans. This can be because of illness, loss of job, divorce, or other circumstances. You may have to provide pay stubs, bank statements, income statements, and other supporting documents. Another thing to be aware of is that sometimes lenders may make you pay the balance of the loans after the sale of your home. If they don’t, the IRS considers the forgiveness of the balance to be taxable income, so you’ll have to report that on your tax return.
If you are in a situation where a short sale is necessary, consult a real estate agent. Many have experience in these kinds of sales and so can understand your situation and even your feelings. You may also want to consult an attorney for advice.
Are there any ways to avoid both a foreclosure and a short sale if you find you are unable to pay your mortgage? You can try to sell your home on your own before either becomes imminent. You could also try renegotiating your loans – remember that the lenders don’t really want you to foreclose either. Another thing you can try is a lease option/equity share arrangement. In this option, you find someone to take over your payments for you (sort of like subletting an apartment). The lessee gets the advantages of owning a home, and you get away from burdensome payments. At the end of the lease period, you sell the home and split the equity.
Having a home and facing the possibility of having to sell if for not only less than you bought it for but less than you owe on the mortgage is disheartening. Foreclosure should be your last resort because it mars your credit report for years, making it hard to get another property or other loans. If you have explored other options, but foreclosure is looming, strongly consider a short sale. An experienced real estate agent can help you with all the necessary steps and make the process a bit easier for you.