What Is A Short Sale

A real estate short sale is a process where the lender allows a owner to sell a home for less than the mortgage balance is. In a short sale the lender agrees to accept money from the sale that fall "short" of the amount owed on the property’s loan. Lenders only agree to short sales if they receive a full and complete package meeting the guidelines of that lender.

Why would a lien holder agree?
Why would a lender agree to get less than what is owed to them? The foreclosure process is long and costly to the lender so, in most cases, the lender is willing to consider taking a loss through a short sale versus a big loss through foreclosure. Many lenders look at a short sale as a better alternative than a traditional foreclosure.

How can I qualify?
Most short sales occur when a homeowner can no longer continue making the monthly payments. Although each lender has their own rules when considering a short sale, here are some general guidelines: • The borrower must have a financial hardship (loss of income, reduction of income, death in family, divorce, job transfer, excessive debt). • The borrower must be behind on payments. • The home must be listed for sale with a licensed Real Estate Agent. • The borrower provides full financial disclosure (pay stubs, bank statements, tax returns, financial statement, and hardship letter).

What are the benefits of a short sale over a foreclosure?
• Minimize credit damage • Gives the borrower an opportunity to negotiate best possible terms with the lender. What is the difference between short selling and foreclosing? • A foreclosure negatively affects your credit score. Not only will this drastically drop the score, but will prevent you from obtaining any type of financing for 7-10 years. Even after this period, the mortgage loan application will always state that the borrower had a foreclosure, and can seriously affect that your ability to obtain financing and credit in the future.

• With a foreclosure, a public notice is filed and privacy is not maintained. A short sale will affect your credit, but not nearly as much as a foreclosure. The credit will be negatively affected for approximately 24 months. • With a foreclosure, a lender can assign a judgment against the homeowner and garnish remaining assets such as bank accounts, income, etc. With a short sale, you walk away free and clear without any deficiency judgment actions taken.

Is it right for me?
A real estate short sale can be the great solution for many homeowners. A short sale allows a homeowner to walk away from their properties without having a foreclosure filed on their credit and without having to owe the bank anything.

Here are some reasons why many people decide to short sell their home: • If you are struggling to make your mortgage payments. • If your interest rate, monthly payments, or mortgage balance has been increasing. If you owe more than your property is worth, and it does not make financial sense to keep the house. • Relocating to a new area, and paying for the current property and a new living situation is not feasible.

How much does this cost?
Nothing. The lender pays the fees through the real estate commissions. What are the tax consequences? The Debt Relief Forgiveness Act and Debt Cancellation was passed In 2007. This allows homeowners to short sell their homes up to 1 million dollars with no tax consequences. Be sure to consult your tax professional for more information. You can also visit the IRS website at www.irs.gov.

Will I need to vacate the property immediately if the lien holder agrees to the terms of a short sale? No. While it is possible that a third party may make an offer on the house, it can still take several months for the short sale to be approved at the lien holder. Can I short sale if my payments are current? Yes Can I short sale if I missed or am behind on my payments? Yes, even if you are in default you can short sell your home. This is almost too good to be true. Why would a lender agree to short sale and take a loss? When a lender forecloses on a home, it costs them approximately $60,000 in fees. Additionally, it is rare that the lender will sell a property for more than what the house could sell for in a short sale. The lender runs the risk of having to maintain a vacant house if the house does not sell immediately at foreclosure auction.

This guest blog article is provided by Carte Blanche Realty. Carte Blanche Realty provides Cedar City real estate services to both homes buyers and sellers in Southern Utah.