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Article By: MayC.
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What is a Short Sale?
Many homeowners bought their houses because they thought they would be staying there for a long time, if not forever, but then something happened
Job transfer, divorce, death, illness, financial difficulties, these are just some of the reasons of homeowners for moving.
Of course, when homeowners move, they will have to sell their house, which before might not have been a problem, but in our current market has become a problem for most people because of the falling housing prices.
Home values have been dropping in some regions over the past year. It has dropped low enough that many homeowners cannot profit sufficiently to payoff the mortgage as well as cover the closing costs.
Most homeowners feel they have no choice but to either walk away from the mortgage, or let the banks foreclose on their property, or bankruptcy. All of these options are have a consequence and it will take a long time for your credit rating to be restored.
A good option that has a considerable lower negative impact on your credit would be a short sale.
A short sale is when the lender agrees to accept a mortgage payoff that is less than outstanding loan.
This is not something that banks or lenders would like to do, but in most cases, it is better than doing a foreclosure. Usually, foreclosures costs more money, but not always. Banks are strictly regulated by the Federal Reserve. If their outstanding loans go beyond what is limited by the Federal Reserve, they will be fined and sanctioned. So if they find that doing a short sale is going to save them money, then they will approve the short sale.
In order for the lender to approve the short sale, the borrower must be experiencing genuine financial hardship, and you will have to prove your hardship by providing documents like financial statements, stocks, bonds, tax returns, medical bills, pay stubs, divorce decree, etc, as well as a "Hardship Letter" from the borrower which has a detailed explanation on the why they can no longer pay the mortgage.
You will have to put your house on the market. Once you sell the property, you will have to supply more documentation; A copy of the purchase agreement, a copy of the comparative market analysis, and a net sheet that shows how much you net from the sale of the property
The amount of debt forgiven is considered as income and is taxable, and you will have to report the income to the IRS.
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