Time and time again homeowners hesitate about looking into a short sale as an alternative
to foreclosure because they fear it will cost them money they just do not have.
What the homeowner needs to know is that completing a short sale does not cost them anything. In fact, the exact opposite is true, it may be more costly if they do not take action to remedy their situation, because a foreclosure is often worse on a person"s credit than a short sale is. In searching out alternatives to foreclosure, homeowners should be cautious of anyone who asks them to pay an upfront fee for the short sale. There are a lot of legitimate businesses out there really trying to help homeowners but unfortunately there are also a lot of people trying to unscrupulously profit from another"s misfortune.
A homeowner who is considering a short sale should also consider looking into the government HAFA program. This is a government backed program that allows the lender to give the homeowner up to $3000 at closing to cover relocation expenses. There is plenty of information available online about this program. A good place to start is the government"s own website. There it lists the details of the program and also the qualifications one must meet in order to participate.
Closing costs and realtor commissions are another potential cost incurred during a short sale, however, the homeowner is not typically responsible for coming out of pocket for these costs either. The lender pays the realtor commission out of the proceeds from the sale. Also the lender typically pays the closing costs associated with the short sale. Closing costs are negotiated as part of the short sale and if the lender does refuse to pay something the buyer typically absorbs this cost. It is rare that a lender would require a homeowner to pay closing costs on a short sale transaction.
Last, but certainly not least, it is very important that the homeowner contacts their attorney or accountant to discuss the possible tax consequences of a short sale. The Mortgage Debt Relief Act of 2007 excludes certain cancelled debt on your principal residence from being taxed. But the homeowner must understand that if they refinanced for cash and the money was used for something other than their home they may be responsible for paying taxes on some or all of the deficiency. Because every individual"s situation is different, it is always good to speak directly with your accountant or tax specialist to understand how the laws may affect you.