What Is A Short Sale?

If you have a home or other real estate that you are having problems paying on you may want to consider doing a short sale. A short sale is something that is increasing in popularity with people who have homes that are facing foreclosure.

What is a short sale?

A short sale is the sale of a house when the proceeds fall short of what the owner still owes on the mortgage. You will find that many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. If you are interested in doing a short sale you have to get the bank to approve the offer that was made on the home and sometimes they do not.

How do you do a short sale with the bank?

In order to do a short sale, you lender must agree to accept less than what is owed on the mortgage. You will have to negotiate this with your lender's loss mitigation department. Usually you will not be able to get a lender to accept a short sale proposal unless a Notice of Default has been issued on the property.

When do you consider a short sale?

Typically short sales are done when the seller is facing foreclosure. Banks will typically accept a short sale on a property facing foreclosure if they think it will result in a smaller financial loss than foreclosing on the property.

Does a short sale clear your debt with the lender?

If you get the approval of your bank for a short sale this does not release you from the remaining debt. For instance, if you owe a mortgage in the amount of $375,000 and you get the approval for a short sale of $300,000 you are still liable to the lender for the remaining $75,000 in most instances. While rare, there are some occurences of banks accepting short sales as settlement in full for the debt. Just do not expect that to be the case. If the bank does write off the remaining balance you can except to get a 1099 from them around tax time. This means that you will have to claim the written off amount as income and pay taxes on it.

Does a short sale affect your credit?

A short sale does have a negative effect on your credit. However, it is not as bad as having a foreclosure on your credit report. A short sale is a settlement, much like if you settle with a credit card company to pay off a credit card for less than the amount owed. That means that a short sale will stay on your credit report for 7 years.

If I do a short sale will I be able to get another mortgage?

While doing a short sale will result in some damage to your credit report, you will be able to bounce back from it. In fact, you may even be able to get another mortgage in as soon as 1 year. Typically though the time frame for being able to get another mortgage is 1 to 3 years. The more you work on rebuilding your credit the sooner you will be able to qualify for another mortgage. Keep in mind though that you will likely get an interest rate that is worse than what you previously had due to the short sale on your credit report.

If you are interested in doing a short sale, you may want to look for a real estate agent in your area that has experience with short sales.

 

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