What Are The Important Short Sale Considerations?
With a short sale, one may have the option of selling their home for less than the total amount owed on the mortgage note. The goal of a short sale is to gain permission from the powers to be of the note to liquidate a distressed asset in hope of potentially being released from the obligation to pay back the full mortgage amount under its original terms. Also, if a borrower is in foreclosure on their property a short sale may be an option to avoid foreclosure; Furthermore, it may still be possible even if foreclosure proceedings have already began on the property. A short sale is a useful workout option for borrowers who are financially bleeding on an underwater real estate asset or who are looking to avoid foreclosure, reduce potential liabilities of the note, obtain more time in the home, and even receive potential relocation monies.
A short sale is never guaranteed to be completed successfully. Completion will come down to many different factors, ranging from borrower delinquency and financials, lien position and value, and mortgage servicer, mortgage insurance, and investor guidelines. There are a few things to keep in the forefront of your mind when completing a short sale.
Key Short Sale Considerations
If your mortgage qualifies for a short sale:
- In most cases the buyer of your home cannot be anyone who you have a business or close relationship with including friends and family. This would be deemed as a violation an arms-length transaction.
- Depending on what state you are in and other factors, you may be required to pay a deficiency balance at or after closing. A deficiency balance is the difference between the proceeds received by the mortgage lender and the total amount owed. If a deficiency balance is not going to be settled it is generally reflected on the short sale approval letter. Certain investors and states do not allow deficiency judgments and others do.
- A short sale or settlement must be reviewed with all lien holders that are underwater. It is not the case that all accounts are always worked by the first mortgage or together simultaneously.
*Note* Keep in mind that a foreclosure may have tax, credit, and other implications on the same level if not greater than a short sale, so be sure to consult with the respective professionals.
- A short sale may have tax implications. It’s important to check with your tax professional to see if you may have tax liabilities after the competition of a short sale.
- There may be additional implications of a short sale to credit and other areas of your life. Be sure to speak with your legal advisor about all potential implications.
- A short sale may be complicated or unworkable depending on how many liens are on title and other specific factors related to your account and circumstances.
- A short sale is generally reported to credit agencies by the lender as “paid in full for less than the full balance”, or an agreed settle short of full payment.
This is not an ideal solution, but many times though it is the only resolution to get out of a sensitive and difficult situation with as little scratches as possible.
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