Facing a Foreclosure: Is a Short Sale the Solution?
If you’re faced with the daunting task of having to cut your losses and leave your home due to rising costs, adjustable rate mortgages, or simply the need to downsize, taking the “short sale” route may be and option worth considering.
When you find that your home is worth considerably less than the current balance you owe on it, the process of negotiating a short sale may be in your best interest. A “short sale” is the term used when the current market value of your current home/property is “short of” the amount you actually owe on it.
If you find yourself in this predicament, you are not alone. Millions of homeowners have found themselves in this situation and the numbers continue to rise. Fortunately, you are not at a total loss as you can save your home from foreclosure and possibly save your credit score by performing a “short sale” on your property.
How a Short Sale Works
When you decide to sell your home, the lender of your current mortgage must be involved every step of the way – not just you or your real estate agent. In most cases, a short sale works by you first explaining your hardship to the lender. From there, the lender will require that you “prove your hardship” by documenting in great detail the reason(s) as to why you can no longer pay the remaining amount on your mortgage loan. This documentation may contain items such as your credit card bills, bank statements, W-2 forms, and any other proof that shows you are unable to pay your bills.
It is important to understand that the short sale route is not without its downsides, especially when it comes to lengthy and sometimes cumbersome paperwork that is involved. Even after stating your hardship, while this may not completely absolve your of the debt you owe, in some cases it may. However, in cases where additional assistance is needed, working with your title company or an attorney that can handle your paperwork might also consider approaching your lender on your behalf in order to ask for ‘forgiveness’ of your debt.
The fact remains that lenders do not desire to amass homes. Instead, they are in the business of selling homes and making a profit. Therefore, if your short sale is accepted by your lender, this provides the lender with another alternative as opposed to foreclosing on the loan.
Why Short Sales Are Still Sought After
The foreclosure process for a lender is very time consuming. When lenders have a large amount of foreclosed properties on their books, this could jeopardize their ability to insure loans later on down the road. With that in mind, you can see why lenders would be much more willing to take the short sale route when offered as opposed to navigating the foreclosure process.
Will a Short Sale Affect My Credit?
If you are forced to take on a short sale in order to avoid foreclosure, it is important to note that this may affect your credit, however, if this is not always the case as there are many instances where the amount you receive from a short sale for your home will be enough to clear your debt.
If you lender decided to forgive your debt, as opposed to you receiving the funds from a buyer, the lender will then issue you a 1099 form for your taxes that is proof of the excused debt.