The short sale: a viable option to avoid foreclosure.
It’s likely you’ve heard the term “short sale” thrown around quite a bit. But what, exactly, is a short sale?
A short sale is when a bank agrees to accept less than the total amount owed on a mortgage to avoid having to foreclose on the property. This is not a new practice; banks have been doing short sales for years. Only recently, due to the current state of the housing market, has this process become a part of the public consciousness. The short sale, in almost every situation where a homeowner is having trouble making their payments, is the best option. Recent government legislation has greatly increased the incentive for banks and homeowner’s to participate in short sales. Under the new HAFA government short sale program homeowners actually get $3000 to participate in a short sale!!
There has been a lot of attention in the media and the internet that it may be smarter to just walk away from your home. This can have serious and dire circumstances in the future, that can be avoided by performing a short sale, . Most consumers believe that when you let your home go to foreclosure you are completely done with the situation. This couldn’t be farther from the truth. Please keep in mind that if your property does go into foreclosure you are liable for the difference of what is owed on the property versus what is sells for. (For example if you owe $200,000 on the property and it sells at auction for $150,000, you are liable for the $50,000 difference.)
Not only are you liable for the difference to the bank, but in most situations you will also be liable to the IRS! Hard to believe? Well, believe it or not, the IRS counts the difference on the sale as a “gain” on your taxes. That’s right—you lost money and it’s counted as a gain! (I didn’t make that rule, that’s just the way it is…) Guess what? In almost all situations a short sale relieves you of the IRS debt and the deficiency judgement!
Most consumers are not aware that banks, especially now, are encouraging short sales! Why would they do this? Well, a foreclosure is very, very long expensive process, and most banks are already overwhelmed with the amount of foreclosures they are handling.
There is a lot of misconception and misinformation as to what qualifies a homeowner to participate in a short sale. It’s fairly simple: Your house has to be worth less than what you owe on it, and you have to have had some type of financial hardship. A financial hardship can be a health issue, reduction in pay, or many , many other factors that qualify. Most national banks, at this point, have become much more lenient on what they consider a financial hardship; as they really would rather perform a short sale over foreclosure. There is also a huge misconception about how long and how difficult short sales are. Short sales, every day are becoming easier and easier, and with the new government program, the turnaround time has been cut in almost half. I can tell you from being involved in several hundred short sales; they do work, and have gotten a lot easier in the last twelve months. Banks are staffing more and more employee’s everyday and changing policies to get short sales approved quicker. The biggest issue with short sales, is having a qualified professional to handle it, this can alleviate many possible problems. Short sales require experience.
The short sale is a true option to avoid foreclosure. It should be viewed as an extremely useful tool, and can relieve a huge financial and emotional burden. Only until recently have the changes be made to not only help the banks, but also the homeowner. Every day short sale rules and regulations are changing to benefit the consumer, and more are to come. Keep this in mind as this is huge benefit for not only consumers involved, but also for our economy as this keeps foreclosures out of our neighborhoods. This is only basic information, if you would like more information please check out my website at www.moorebrittingham.com