However, a short sale results in a loss on the loan and the end of interest payments and service charges that represented the lender's profits. A short sale occurs when a property is sold for less than what is owed on the mortgage with the lender's approval. Learn about the advantages and disadvantages of these types of transactions for the seller and the buyer. Once the short sale is over, your lender may call you or send you letters stating that you still owe money.
These letters may come from a lawyer's office or a collection agency and will require you to pay for the deficiency. Your lender or collector may even try to intimidate you into making payments. However, without a court judgment for real deficiency, the creditor cannot freeze your bank accounts, garnish your salary, or impose legal liens on other assets owned by you. Whenever you sell a home, you must calculate your capital gains to determine if you owe any taxes.
If you short sell or your mortgage lender foreclosures your home, the Internal Revenue Service treats it like a sale. Foreclosures and short sales may also require you to recognize ordinary income if the lender cancels part of the outstanding mortgage balance and you are not eligible for an exclusion. If you don't have an approved short selling transaction at the end of the trading or listing period, the lender can generally continue with foreclosure. Depending on the difficulties, there may be an alternative to short selling that puts the owner in a better financial position.
Short sale homes are sold as is, without the seller's mandatory obligations for a normal sale of real estate. Since short selling is a desperate effort to avoid foreclosure for both the seller and their lender, they will only come to fruition if those two parties have established that short selling is the best alternative. For a homeowner struggling to make ends meet, the possibility of owing money to the IRS makes a short sale much less attractive. Since short sales are not accompanied by the typical disclosures of a normal home sale, it is up to the prospective buyer to inspect the property and identify any faults.
Check your state's laws that cover the foreclosure reporting process to find out exactly where to look for unlisted properties that may be subject to short sale. The exact extent to which your rating will decline depends mainly on the information that the managing entity reports about the short sale and your credit history. Often, lenders demand that other loss mitigation options be considered and rejected, depending on the financial industry, to find solutions for managing homeowners' debt, for good reason before considering a short sale. A short sale or foreclosure are two possible outcomes for homeowners who are behind on their mortgage payment, own a home that is under water, or both.
While a foreclosure basically allows you to leave your home, albeit with serious consequences for your financial future, such as having to file for bankruptcy and destroying your credit, completing a short sale is labor intensive. According to a major mortgage company, Freddie Mac, in its FAQ section on buying a property for short sale, home mortgage insurance (a policy that protects the lender from default by a homeowner) could also affect the lender's acceptance of the sale. In many states, the lender can seek a personal judgment against you after the short sale to recover the amount of the deficit. Holders of this certification have specialized training in short selling and foreclosures, qualify sellers for short selling, negotiate with lenders, and protect buyers.
If someone co-signed the mortgage, the lender can hold that person responsible for the payment instead of making a short sale. A homeowner in this situation must seek permission from the lender to sell the home for less than what is due in a short sale. .