SUMMARY - A Short Sale is when a borrower is stating that they cannot pay back the full price of the loan, then the lender will usually agree to forgive the rest of the loan, this would be considered a short sale. In the world of real estate, short sales are the purchase of pre-foreclosure sales.So, you are wondering
what exactly is a short sale? Even though foreclosure's have been happening for quite sometime now, many are still wondering what a short sale is. Many home owners are still wondering why a mortgage company would agree to take less than what is owed on the mortgage.
To make it simple to understand, here is some helpful information.
Mortgage companies often get stuck with foreclosed properties that they have to pay closing costs, auction fees, taxes, repairs and liens on. Since a mortgage company is in the business of making money and lending out money, a foreclosed property makes alot more work for the bank to deal with. Can you imagine having to take back a house you sold or lended to someone in need of your money?
If you’ve missed multiple mortgage payments and you’re facing foreclosure, the bank or lender won’t automatically offer a short sale. You need to prove that your situation is difficult for a short sale, which typically involves providing documentation that proves you are indeed in dire straits, with no other viable options. And even if your situation fits, the bank or lender must still decide if your particular situation works for them financially.
If they have a homeowner that has not paid the bill for a few months, due to hardship, double mortgages or abandonment of the property, it is likely that property will become a foreclosure. In this case, the bank will have to sit on that property for months, will have to pay repair and auction costs. This means they will essentially lose money on the property.
When a borrower comes to them stating that they cannot pay back the full price of the loan, then the lender will usually agree to forgive the rest of the loan, this would be considered a short sale. In the world of real estate, short sales are the purchase of pre-foreclosure sales.
In the case of a pre-foreclosure sale, a seller is trying to sell of the home in order to avoid the bank foreclosing on their home and having this affect their credit rating. If the seller has tried to sell the house through a real estate agent and the mls , they will often take a short sale in order to accomplish getting rid of the loan amount due before foreclosure.
The most common reason for the bank to accept a pre-foreclosure sale is because of hardship. Another reason why they may also consider this option if the home has sat on the market for a long period of time without being able to sell the property. In many cases, the owner is no longer able to make mortgage payments during such an long period of time to make a sale. A mortgage company may be willing to forgive a portion of the loan, but it isn’t likely unless the home has been sitting on the market for a substantial period of time and the homeowner can prove they were not able to pay.
Even if a home owner is currently facing foreclosure, the lender will have to determine if your less than full payment would be worthwhile. Depending on your lending institution, some will require that you pay off the remaining amount of the loan, while others will require a repossession of other items to make up the difference.
If you come upon a mortgage lending company that is willing to forgive your loan, be sure that you understand the amount given is not totally free. In some cases, , the IRS will consider the amount forgiven as taxable income that will need to be taxed and included in your end of the year tax return report. If this is the case, you are still in a better position then being held liable as is the case in foreclosure for any unpaid balance less the amount the bank was able to get back from the sale of the property following foreclosure.
Remember, a pre-foreclosure sale is meant to relieve you of the burden of your home and should not come with added stress. Less time to worry and less money owed in the end is your ultimate goal.