It seems the theme of the day has moved from "FORECLOSURES" to "SHORT SALES". So what exactly are these "SHORT SALES"? Well, simply put, its when the value of the home is lower than the amount owed to the mortgage company. You sell the house for less than is owed and the bank accepts that payment and removes the mortgage (the security that attaches to the properties title). So what are some of the pro's to selling your home as a short sale:
1. If you have fallen behind on your mortgage, you can sell your home and keep from having to go through the foreclosure process.
2. By selling the home vs losing it to foreclosure you will help keep your credit in tact. Yes, your credit will be negatively effected by the late payments, but this is much better than having a foreclosure show up on your credit report.
3. Saves you any embaressment of having your home auctioned off and the sherrifs dept. remove you from the home.
Now the cons:
1. They take much longer than the typical real estate transaction. Short Sales can take up to 6 months to complete.
2. There's no gaurantee after you find a buyer that the bank will accept the sale. The bank doesn't have to accept less then they are owed. Its important to work with someone that can explain to the banks loss mitigation deptartment why it's in their best interest to accept the sale.
3. Just becuase the bank accepts the terms, doesn't mean your off the hook. For example, if you owed $300K to the bank and sold your house for $275k, the bank didn't recieve $25,000 (the difference in what was owed vs the sales price). You could find yourself receiving an IRS Form 1099 in the mail come tax time. This could be considered taxable income. There is an IRS form 982 that may allow you to get around this. President Bush also passed a bill that allows you to write this off without paying taxes, but there are certain criteria you must meet. You should speak with a Tax Professional to make sure you qualify and don't get hit with a huge tax bill.
4. The process can be very frustrating. If you don't know what your doing, I recommend working with an experienced agent or even an attorney. You will need to provide certain documentation in order to get your short sale approved, such as a net sheet, hardship letter, financials, etc.... Much like when you applied for your mortgage you had to provide documentation to show you could qualify for the loan, now you're doing the opposite, you showing documentation to show you no longer qualify.
I hope this quick description helps you better understand the latest buzz word. Remember, if you've fallen behind on your mortage, you don't have to lose your house to foreclosure. You have options, the key is not to procrastinate. The earlier you deal with the issue, the more solutions you will have available (such as a forebearance, loan modification, short sale, dead in lieu of foreclosure just to name a few).
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