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Short Sale

Some mortgage lenders offer short sale real estate transactions to borrower's who have defaulted on their loan. In a nutshell, lenders allow borrower's to sell their property for less than is owed on it - hence the name, 'short sale'.

Short sales provide borrower's with an opportunity to sell their property and get out from under their loan. When negotiated properly, short sales allow the homeowner to walk away from the property, salvage what's left of their credit, and avoid foreclosure.

If you are facing foreclosure, a short sale might be the solution to your problem. While a short sale won't allow you to retain the property, it can be a gentler way to let go of your home. Although foreclosures are skyrocketing across the country, it doesn't make it easier to deal with when you are the one being foreclosed upon.

No matter how you slice it, foreclosure has a great deal of negativity surrounding it. It seriously blemishes your credit and can haunt you for up to 10 years. It's incredibly embarrassing and humiliating. The process is daunting and can drain you emotionally and mentally. It can stress you out so bad that you become physically ill and unable to function.

If you prefer to avoid the negativity, consider engaging in a short sale. Although a somewhat complex process, you can hire people to help you. Before you do anything, contact your lender and inquire about their short sale process. Each lender has their own set of guidelines and not all lenders will enter into a short sale agreement.

You'll need to meet certain requirements to qualify for a short sale. One of these requirements is your ability to show just cause for your financial hardship. Additionally, you cannot have any equity in your home and must owe more on the loan than the home is worth.

If your lender agrees to a short sale you will be required to submit a letter of hardship. If you defaulted on your loan because you can't control your spending and live beyond your means, you're not going to qualify for a short sale. However, if you were laid-off from your job or dealing with chronic health problems, lenders will be more willing to engage in a short sale real estate transaction.

It's best to hire a professional to assist in the short sale negotiation. You want the lender to accept
'payment in full without pursuit of any deficiency judgment'. What this means is the lender will accept whatever amount the house is sold for and will not pursue you for the difference.

Some lenders agree to short sale transactions, but require the borrower to repay the difference between the short sale and actual loan amount. If the borrower is unable to repay the balance in full a deficiency judgment is issued. This judgment is reported to credit agencies and remains on your credit report for 7 to 10 years; even if you pay it in full.

One drawback of entering into a short sale is that you may have to pay income tax on the difference between the short sale and loan balance. If you owe $100,000 on your house and short sell it for $75,000, the lender might send you a 1099 for the $25,000 difference.

Short sale transactions are a good option for most people. While it's difficult to walk away from your home, it's important to remember you can make any house a home. Take this opportunity to review your financial situation and make a plan for improving it. Turn this into a learning phase of your life and start moving forward.


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Published on May 05, 2008 at 06:36 AM | Comments: 1

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Comments

I have seen people lives drastically improve after they have chosen to do a short sale. It's a fresh start

Eric Baskett | November 16, 2010 10:54 AM

 

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