What is a Short Sale?

What is a short sale?

A short sale is a negotiated settlement between a homeowner and a lender by which the lender agrees to accept less than the outstanding principle balance of the home loan as payment for the loan.

Why would I want to do a short sale?

If you are a homeowner who owes more on your property than what your property could sell for and you are facing a financial hardship such that you are unable to make regular payments on your home loan, then a short sale might be a good choice for you to avoid the more costly and credit-damaging alternative of foreclosure.

How is a short sale different from a foreclosure?

A foreclosure is an involuntary seizure of your property by a lending institution. It is costly and time consuming for the bank and more damaging to your credit. A short sale on the other hand is initiated by you and is a cooperative action between you and the bank. In short, short sales are a win/win in comparison to foreclosures.

How do I know if I qualify for a short sale?

Ultimately the decision to accept a short sale is up to the bank. First you must be able to demonstrate that you have a hardship which makes it impossible for you to continue to make regular payments. Beyond that, other factors are: 1) Do you have assets that could be liquidated to cover the loan deficit between the market value of the home and the balance of the loan? 2) Can a qualified buyer be found for your property at a price that the lender finds acceptable? 3) Are there other liens on the property?

Many home owners get frightened or frustrated by the process of negotiating with a bank. Having a real estate professional who has been through the process takes away much of the burden from you of pricing your home, negotiating with the bank, finding a buyer for your home, preparing the necessary paper work, following up with the bank, and ensuring that your interests are being taken care of.

Are there tax implications with a Short Sale?

The general rule is that the amount of debt forgiven by the bank which is the difference between market value and the balance of the loan, is taxable income. However, legislation passed in 2007, called the Mortgage Forgiveness Debt Relief Act of 2007, allows many debtors to exclude such income provided the mortgage was for the principle residence. You can find more information on this topic on the IRS Website.

Are there other options besides a Short Sale?

Yes. Every situation is different. Call a Springfield Real Estate Agent today to discuss your options.