What is Short Sale?

What is Short Sale?

What is Short Sale?

Many people buy homes, fully intending to stay in them for dozens of years. However, along the way something happens. Sometimes that something is good, and other times it is bad, but either way, they are left with no choice but to sell. That leaves homeowners with the task of selling their home, which isn't usually a problem. However, it is a problem for many people nowadays.

Because of easy financing, widespread speculation, house flipping and fraud, property values went through the roof a while back. That has now come to an end, with many people owing more on their home than it is worth. Even when property values are stable, there still may not be adequate equity in the home to satisfy the mortgage, let alone pay the moving and closing costs.

Then what happens?

After that, many things can happen, and most of them are not good, like bankruptcy, default and even foreclosure. The other option is a short sale. This is where a lender will agree to a payoff that does not cover the entire outstanding loan amount.

Why would a lender do this?

It really just comes down to a matter of cutting losses. In general, a lender will lose far less money by offering a short sale than they would by foreclosing and trying to sell it as bank-owned.

Do I qualify for a short sale?

A borrower must be facing a financial hardship. If you feel you qualify, contact your lender. The financial or collection department needs to be informed of your hardship so it can be entered into your file.

Eventually, you would need to provide proof of your hardship and inability to handle it by disclosing your assets and financial details. The lender will need to be sure that you aren't hiding income or assets, so they will want to see pay stubs, tax returns, bonds, stocks and bank statements.

Normally, your lender is unable to make a final decision to accept the short sale on their own. The owner of the mortgage insurance will have a say as well. Every mortgage has an investor, and that investor gets a say. If the proposed deal looks good, and your hardship has been verified, you could get approved. You stand a much better chance if you have someone negotiating on your behalf.

Lastly, if the lender forgives part of your debt, there is one important thing to bear in mind. Debt forgiveness is considered a taxable income, and the IRS requires you to report and pay taxes on it.

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