WHAT IS A SHORT SALE?
A short sale is a sale of real estate in which the proceeds from the sale of the property falls short of the balance of the debt owed under a mortgage/deed of trust secured by the property. In many instances, the property owner cannot afford to repay the balance of debt of the mortgage/deed of trust and the lender agrees to release their lien on the real estate and accept less than the amount owed on the debt. Any unpaid balance owed to the creditors is known as a deficiency. Short sale agreements do not necessarily release borrowers from their obligations to repay any deficiencies of the loans, unless specifically agreed to between the parties. A short sale is often used as an alternative to foreclosure because it mitigates additional fees and costs to both the creditor and borrower.
More Frequently Asked Questions
Under current tax provisions a short sale of owner occupied residences and investment properties where a deficiency remains will result in a tax liability. The tax is based on the forgiven debt and will be calculated based on the selling party’s income tax bracket. There are certain circumstances where taxes may be avoided and an accountant or similar tax professional should be consulted for further information on this topic.
Lenders report short sales to the credit bureaus as accounts settled for less than the amount owed. As a consequence, your credit score will be negatively affected. Depending upon what your credit score was before the short sale, it may take six months to three years to rehabilitate your credit score.
Whether or not a foreclosure will be pursued is within the sole discretion of the lender. Oftentimes, where a short sale is being actively pursued, a lender will forego pursuing a foreclosure. In other instances, the lender will pursue a foreclosure while simultaneously processing a short sale.
- Whether they are authorized by their state licensing agency to negotiate on your behalf.
- The actions they can and cannot take on your behalf.
- The number of short sales they have successfully negotiated to completion.
- Your eligibility for federally mandated programs and the advantages and disadvantages of these programs.
- Whether there are other alternatives that you can pursue that are better suited to you situation
