In a short sale, foreclosure is avoided and the owner avoids all the credit problems associated with a foreclosure. With that being said, a short sale is not a quick fix solution.
Why a Short Sale
When a homeowner is upside down in his mortgage (the property is worth less than the amount of the loan) and can no longer meet the mortgage obligation, a short sale is an option to having the bank foreclose. In a nutshell, the owner obtains the bank’s or lender’s consent to sell the property for less than the amount or the lien, and all money is turned over to the bank or lender.
A bank or lender agrees to a short sale because they believe that it is in their best interest to get as much as they can for the property. A foreclosure or bankruptcy costs them time and money, and they may be saddled with a property that is difficult to move.
General Overview
If you opt for a short sale, there are several things involved. The Loss Mitigation Department of the bank or lending institution will want to see your financial statements to get a true picture of your situation, and you cannot be in default on your mortgage payments. You will need to determine the value of your home. Using an agent may also be a problem because you may have to find one willing to work for a lesser rate before the bank will work with you, so in order to be able to do a short sale, you may have to do all the work yourself.
Do not expect a short sale to happen quickly. On average, short sales take from two to four months. During that time, you will still have to remain current on your mortgage payments. In addition, the IRS may have the right to tax you on the proceeds from the transaction.
In spite of all this, the advantage of not going into foreclosure may outweigh all the work necessary for a short sale. Obviously, it is not a frivolous decision.
However, a short sale may not be the best option; in fact, it is probably the last option to pursue before foreclosure. Before considering a short sale, foreclosure, or bankruptcy contact a real estate attorney or your lender to discuss other ways to stay in your home – restructuring your loan, or delaying a couple of monthly payments until you are better able to get a grasp on your financial situation.
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