Patricia Paul Properties

What Is A Short Sale? PDF Print E-mail
Saturday, 21 June 2008 20:00

You've probably heard the term "short sale" recently, and may have wondered what this means.  Simply put, a short sale occurs when a home is sold for less than what is owed on it. 

How does this happen?   It can be due to a variety of reasons.  Often the homeowners have taken out a home equity line of credit (HELOC), cashing in on the equity they already had in the home.  But when the market fluctuates as it has recently, and home values decline, they find that they owe more than what it is worth.

Similarly, you have probably heard of homeowners who had taken out adjustable rate mortgages (ARM's).  After a certain specified period, the interest rates start increasing, and the monthly payments go up accordingly.   Those who can no longer afford the payments may have to sell their home, and also due to declining values could find themself in a short sale.

What happens when the home is sold for less than it is worth?   If the sellers put their home on the market and find a willing buyer, they enter into a purchase contract.  But the lender or financial institution has to agree to allow the sellers to complete this transaction.   Sometimes the lender will allow the sellers to take out a new personal line of credit (this time, unsecured by the home) for the difference between the selling price and what is owed.   Sometimes lenders will even excuse the amount of the difference, depending on the amount. 

Up until just recently, the sellers had to claim this amount excused as income in their personal income taxes.  Due to recent  legislation, currently this difference is not subject to taxation.

In any case, the sellers' credit will be negatively affected.   However, a short sale is less destructive to the credit rating than a foreclosure is.   Check with a real estate attorney or an accountant to discuss the ramifications.

If you are behind in your mortgage payments and think there's no way out, perhaps there is.  Talk to your lender.  They often can work with the homeowner and find an alternate solution.  The banks don't want to have to deal with all these foreclosed homes if they don't have to.  Or, you can also discuss your situation with a trusted realtor.  They can help you determine  values, and serve as a liaison between you and the lender.

I have some experience working short sales.  If you'd like to talk more about foreclosures and short sales, just give me a call.  (520) 548-2078

 

 

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Last Updated on Sunday, 22 June 2008 12:53
 

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