What exactly is a Short Sale?
Posted on 02. Feb, 2010 by toniarney in Blog
As a real estate agent I get asked this question often. In today’s current economic condition short sales make-up more than half of all real estate transactions. A short sale is a term used to describe the sale of a home that falls “short” of the balance owed on a mortgage. A short sale often occurs when a homeowner or borrower can no longer pay their mortgage and decides to sell the property as an alternative to facing lender foreclosure. The lender or bank must consent to the short sale process because they’re essentially agreeing to discount the loan balance due to the economic or financial hardship of the borrower. But neither side is doing each other a favor, its simply the most logical solution for both parties.
There are a few very important factors to consider before deciding to short sale your property….
#1.) Once the property is sold as a short sale, the IRS could consider the debt foregiveness as income.
#2.) The lender who accepts the short sale may pursue the borrower for the difference between the amount owed and the amount the property was sold for ( you should consult a real estate attorney to determine if your loan qualifies for a deficiency judgement).
#3.) The equity or lack of equity will be determined by the lender from an appraisal or Broker Price Opinion (BPO). Any equity available will be forefeited and absorbed by the lender.
Currently there’s an unprecedented amount of short sales and foreclosures that mortgage lenders have encountered due to the current housing crisis. Therefore, most lenders and banks are willing to accept short sales like never before. Its important to know that short sales are a type of settlement and will have a negative affect on a person’s credit report. However, after a short sale a person has the opportunity of possibly obtaining another mortgage within 1-3 years.
For more information regarding short sales see the Mortgage Forgiveness Debt Relief Act of 2007.
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