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What is a Short Sale?

'Short sale' is a real estate industry term used when a lender accepts a discounted payoff on a mortgage loan. Short sales offer homeowner's who have defaulted on their mortgage an opportunity to sell the home for a lesser amount than is owed and avoid foreclosure.

Not all lenders are willing to engage in a short sale. Those who do, generally have their own set of procedures. Some may require the Seller to work with a real estate agent. A few will accept the short sale as full payoff, while others will require the Seller to pay the difference between the short sale and the original amount of the loan.

When a homeowner owes the difference between the mortgage balance and the discounted short sale, it is known as a 'deficiency judgment'. The judgment is reported to credit bureaus and remains on the homeowner's credit report for 7 to 10 years; even if it's been paid in full.

In addition to this, the difference between the balance and short sale amount may be subject to income tax. For instance, if the mortgage balance is $100,000 and the short sale amount is $80,000, the homeowner may have to pay income tax on $20,000.

Before entering into a short sale agreement it's imperative to convince the lender to accept 'payment in full without pursuit of any deficiency judgment'. Also known as Deed in Lieu of Foreclosure, this document allows the homeowner to turn the home over to the lender and be clear of debt on the home.

Short sales are a last resort and generally entered into only after all other options have been exhausted. The Seller is required to provide a hardship letter to the lender, explaining the circumstances that caused him to default on the loan. Lenders are usually more willing to work with individuals who defaulted on their mortgage due to loss of employment or health problems than someone who lives beyond their means.

Real estate experts recommend working with a professional realtor who possesses short sale experience. An experienced short sale agent can help expedite your transaction and protect your interests.

Although you will not be able to retain ownership of your home, a short sale is a good option if it is negotiated properly. If you're currently facing foreclosure, you may qualify to sell your house to an investor such as

To learn more about your options, fill out the Real Estate Notes form and provide us with information about your situation. One of our qualified consultants will contact you to further discuss your needs.

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Published on September 26, 2007 at 09:46 PM

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