The Short on Short Sales
What is a short sale?
A short sale is a transaction in which the lender, or lenders, agree to accept less than the mortgage amount owed by the current owner (seller). In some cases, the difference is forgiven by the lender, and in others the seller must make arrangements with the lender to settle the remainder of the outstanding debt. The selling process for those exercising a short sale can be a long and drawn out procedure prior to the actual closing of the transaction. Sellers should consult with a tax accountant or CPA prior to engaging in a short sale due to the possible tax liability as it relates to current IRS statues.
Why is the number of short sales rising?
Due to the recent economic crisis, including unemployment, and drops in home and condominium prices in cities across the nation, the number of short sales is increasing. Since a short sale generally costs the lender less than a foreclosure, it can be a viable way for a lender to minimize their losses.
A short sale can also be the best option for sellers who are “upside down” on mortgages because a short sale may not hurt the sellers credit history as much as an actual foreclosure. As a result, owners may qualify for another mortgage sooner once they back on their feet financially.
