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The Principles of a Short Sale?

Apr 5, 2008
Many homeowners bought their houses because they thought they would be staying there for a long time, if not forever, but then something happened

Homeowners forced to move due to some unforeseen or unexpected events, like job relocation or reassignment, divorce, death, or maybe financial difficulties.

When these things happen, they will have to put their home in the market so they can move. Before, selling your house was not really a problem, but with the home values dropping, it has become a problem for a lot of people.

Housing prices have been going down in some regions, over the past year. It's harder to move now because the prices are going down and the profit is not sufficient for you to settle the outstanding loan as well as the closing costs.

With the prices down, what happens could be either default, wherein the homeowner walks away from payment obligations, bankruptcy, or maybe foreclosure. All of which can severely impact your credit rating for a long time.

A good option that has a considerable lower negative impact on your credit would be a short sale.

A short sale is when the lender agrees to accept a mortgage payoff that is less than outstanding loan.

This is not something that banks or lenders would like to do, but in most cases, it is better than doing a foreclosure. Usually, foreclosures costs more money, but not always. Banks are strictly regulated by the Federal Reserve. If their outstanding loans go beyond what is limited by the Federal Reserve, they will be fined and sanctioned. So if they find that doing a short sale is going to save them money, then they will approve the short sale.

You have to be truly experiencing financial hardship, to be eligible for a short sale. You will have to disclose your assets, and there are documents that the borrower needs to submit to the lender to get the short sale approved; Financial statements, tax returns, pay stubs, medical bills, stocks, bonds, divorce decree, etc. Along with these documents, you will need to write a "Hardship Letter" to explain your financial difficulties.

You will also have to put your house on the market, and once the property is sold, submit a copy of the comparative market analysis, a copy of the purchase agreement, and a net sheet. Your agent will furnish these documents for you.

The amount of debt forgiven is considered as income and is taxable, and you will have to report the income to the IRS.
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