The Idea of a Short Sale
May C.
A lot of people buy houses with the intention of making it their home for the rest of their lives, but unexpected situations occur where homeowners have no choice but to move.
Be it positive or negative, you can't predict situations like job relocation, divorce, financial difficulties, or death to occur.
They will have to put their house on the market when they move, which is not as easy to do now as is was before because of housing prices falling.
Home values have been dropping in some regions over the past year. It has dropped low enough that many homeowners cannot profit sufficiently to payoff the mortgage as well as cover the closing costs.
There are many things that could happen as a result of this; Default, bankruptcy, or foreclosure. All of which will have a negative impact on your credit rating for a long time.
Depending on your outstanding mortgage, the best alternative that has a significantly lower negative impact on your credit would be a short sale.
What is a short sale? A short sale is when the lender forgives a portion of your mortgage and accepts a lesser amount than your loan balance.
Why would they want to do this? They don't. But it's better than nothing. Foreclosure is a long expensive process, and usually costs more than just doing a short sale. Also, banks are regulated by the Federal Reserve, and there are fines and sanctions for loans that are considered as bad debt if they reach a certain percentage.
You have to be truly experiencing financial hardship, to be eligible for a short sale. You will have to disclose your assets, and there are documents that the borrower needs to submit to the lender to get the short sale approved; Financial statements, tax returns, pay stubs, medical bills, stocks, bonds, divorce decree, etc. Along with these documents, you will need to write a "Hardship Letter" to explain your financial difficulties.
You will also have to put your house on the market, and once the property is sold, submit a copy of the comparative market analysis, a copy of the purchase agreement, and a net sheet. Your agent will furnish these documents for you.
The amount of debt forgiven is considered as income and is taxable, and you will have to report the income to the IRS.
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