Short-Sale.com

What is a Short Sale?

A short sale definition can be easily found these days as more homeowners try to avoid foreclosure. But what exactly is a short sale? When would anyone need a short sale, and why would they even consider it?

Basically, a short sale is a program that allows a homeowner to sell their house for less than what is owed on the mortgage. A short sale is designed to help people avoid the stress and embarrassment of foreclosure. If approved, a short sale can help homeowners avoid further collection activity which could result in adverse credit reporting and possible tax liabilities.

Why would anyone consider a short sale? There are many different reasons. Perhaps the homeowner lost his or her job, or suffered an illness or injury that prevented them from working. Perhaps their salary had been drastically cut and they suddenly found themselves struggling to pay the bills. In any case, it generally begins with the homeowner coming to the realization that they can no longer afford their monthly mortgage payments, coupled with the fact that the current real estate market will force them to sell the home at a value below what they owe on it. This is the situation that is generally explained as sellers being "upside down" on their mortgage. .

Short sales are not foreclosures although it could be said that foreclosure is the next step, should a short sale fail for any reason. In a short sale the seller still owns the home, whereas in a foreclosure the bank takes over ownership. The difference between a short sale and foreclosure will also be shown on your credit report. Although the decision is ultimately the lender's, they may opt to show the mortgage debt as paid in full for less than the agreed-upon amount. On the other hand, a foreclosure will show an unpaid debt on a credit report. The negative effect on a credit report could be anywhere from 300 to 500 points.

Sellers should always consult a tax professional when considering a short sale. Tax implications of such a proceeding could be complicated, especially with the tax laws changing so rapidly. In any case, tax implications will depend on whether the lender will accept the reduced payoff as full satisfaction of the loan or issue a deficiency judgment, which is basically a promissory note stating the seller will pay back the difference between what was paid and what was owed. This judgment can be, and usually is, negotiated out of the contract. Still, there is no guarantee that the lender will accept the payoff or merely release its lien until after the short sale is completed. Every lender is different and may have different procedures and requirements, and follow different regulations.

Sellers are advised to seek advice from an attorney or tax professional regarding their tax liability as the result of a short sale, but in general, debt forgiveness is considered taxable income. The Mortgage Forgiveness Debt Relief Act of 2007 may allow sellers to exclude up to $2 million of debt forgiveness for a principal residence. Again, sellers must consult a qualified tax professional to ascertain their liability in this instance.

As difficult as short sales can be, they are not available to everyone. Sellers will not be eligible for a short sale if they cannot prove financial hardship, if they own other businesses or real estate in addition to their primary residence, or if they are in the middle of a bankruptcy proceeding. Also, it is important to note that short sales are what is known as "arms-length" transactions, meaning that the property may not be sold to anyone with whom the seller has a close personal or business relationship, including friends, family and neighbors.

The short sale process begins much the same way as any other property sale; that is, the property is listed for sale on the real estate market, and it is shown to potential buyers. However, the seller must first request approval of the short sale process from the lender. The lender will then provide the seller with a hardship package which clearly explains everything needed for the seller to submit their short sale request. This begins with a letter of hardship in which the seller must outline in detail and in their own words the reasons for their inability to meet financial obligations. This letter is an important part of the short sale, and the seller should be as persuasive as possible in describing why they are no longer in a position to pay their mortgage. Honesty and frankness count as the letter could make or break the short sale.

In addition to the hardship letter the homeowner will need to supply the lender with further documents. Each lender is different and their requirements may vary, but in general they will request such paperwork as current financial statements, tax returns, an accounting of assets and liabilities, pay stubs, insurance information, mortgage statements, authorization forms, and other papers that might be relevant, such as divorce decree, bankruptcy documents, and power of attorney forms.

Once the lender agrees to the short sale, the seller must wait for an offer on the property. Once an offer is received and accepted by the seller, it then must be presented to the lender. In a short sale transaction, offers to the lender must be accompanied by a fully executed contract of sale between the buyer and the seller. Even so, it is understood by all parties that the lender may reject the offer, in which case the process will have to begin again. The lender is usually slow to come to a decision and the process of accepting or rejecting may take anywhere from three weeks to three months or more. During that time, the property is officially in contract and cannot be sold to another buyer, although it usually continues to be marketed in the hope of receiving a backup offer.

Short sales are not for the faint of heart. They are demanding transactions that require patience and fortitude from the seller. In the end, however, short sales are worth the time and effort if they result in the avoidance of a foreclosure action.

A short sale definition can be easily found these days as more homeowners try to avoid foreclosure. But what exactly is a short sale? When would anyone need a short sale, and why would they even consider it?

Basically, a short sale is a program that allows a homeowner to sell their house for less than what is owed on the mortgage. A short sale is designed to help people avoid the stress and embarrassment of foreclosure. If approved, a short sale can help homeowners avoid further collection activity which could result in adverse credit reporting and possible tax liabilities.

Why would anyone consider a short sale? There are many different reasons. Perhaps the homeowner lost his or her job, or suffered an illness or injury that prevented them from working. Perhaps their salary had been drastically cut and they suddenly found themselves struggling to pay the bills. In any case, it generally begins with the homeowner coming to the realization that they can no longer afford their monthly mortgage payments, coupled with the fact that the current real estate market will force them to sell the home at a value below what they owe on it. This is the situation that is generally explained as sellers being "upside down" on their mortgage. .

Short sales are not foreclosures although it could be said that foreclosure is the next step, should a short sale fail for any reason. In a short sale the seller still owns the home, whereas in a foreclosure the bank takes over ownership. The difference between a short sale and foreclosure will also be shown on your credit report. Although the decision is ultimately the lender's, they may opt to show the mortgage debt as paid in full for less than the agreed-upon amount. On the other hand, a foreclosure will show an unpaid debt on a credit report. The negative effect on a credit report could be anywhere from 300 to 500 points.

Sellers should always consult a tax professional when considering a short sale. Tax implications of such a proceeding could be complicated, especially with the tax laws changing so rapidly. In any case, tax implications will depend on whether the lender will accept the reduced payoff as full satisfaction of the loan or issue a deficiency judgment, which is basically a promissory note stating the seller will pay back the difference between what was paid and what was owed. This judgment can be, and usually is, negotiated out of the contract. Still, there is no guarantee that the lender will accept the payoff or merely release its lien until after the short sale is completed. Every lender is different and may have different procedures and requirements, and follow different regulations.

Sellers are advised to seek advice from an attorney or tax professional regarding their tax liability as the result of a short sale, but in general, debt forgiveness is considered taxable income. The Mortgage Forgiveness Debt Relief Act of 2007 may allow sellers to exclude up to $2 million of debt forgiveness for a principal residence. Again, sellers must consult a qualified tax professional to ascertain their liability in this instance.

As difficult as short sales can be, they are not available to everyone. Sellers will not be eligible for a short sale if they cannot prove financial hardship, if they own other businesses or real estate in addition to their primary residence, or if they are in the middle of a bankruptcy proceeding. Also, it is important to note that short sales are what is known as "arms-length" transactions, meaning that the property may not be sold to anyone with whom the seller has a close personal or business relationship, including friends, family and neighbors.

The short sale process begins much the same way as any other property sale; that is, the property is listed for sale on the real estate market, and it is shown to potential buyers. However, the seller must first request approval of the short sale process from the lender. The lender will then provide the seller with a hardship package which clearly explains everything needed for the seller to submit their short sale request. This begins with a letter of hardship in which the seller must outline in detail and in their own words the reasons for their inability to meet financial obligations. This letter is an important part of the short sale, and the seller should be as persuasive as possible in describing why they are no longer in a position to pay their mortgage. Honesty and frankness count as the letter could make or break the short sale.

In addition to the hardship letter the homeowner will need to supply the lender with further documents. Each lender is different and their requirements may vary, but in general they will request such paperwork as current financial statements, tax returns, an accounting of assets and liabilities, pay stubs, insurance information, mortgage statements, authorization forms, and other papers that might be relevant, such as divorce decree, bankruptcy documents, and power of attorney forms.

Once the lender agrees to the short sale, the seller must wait for an offer on the property. Once an offer is received and accepted by the seller, it then must be presented to the lender. In a short sale transaction, offers to the lender must be accompanied by a fully executed contract of sale between the buyer and the seller. Even so, it is understood by all parties that the lender may reject the offer, in which case the process will have to begin again. The lender is usually slow to come to a decision and the process of accepting or rejecting may take anywhere from three weeks to three months or more. During that time, the property is officially in contract and cannot be sold to another buyer, although it usually continues to be marketed in the hope of receiving a backup offer.

Short sales are not for the faint of heart. They are demanding transactions that require patience and fortitude from the seller. In the end, however, short sales are worth the time and effort if they result in the avoidance of a foreclosure action.

We will be lauching our real estate short sale solution website in the next 30 days. Our site will assist everyone involved in real estate short sales from home owners who are upside down, real estate agents who currently have a real estate short sale listing and mortgage lenders.

In the meantime we are posting information on our real estate short sale blog

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