For homeowners experiencing financial difficulties, foreclosure can feel like the only option. If you’re struggling to make ends meet and to afford the mortgage payments every month, you might be in a position where you’re having to think about your next steps.
A short sale may be the answer.
What is a short sale?
A short sale is a complex real estate transaction. A purchaser can buy the property at an amount that’s less than the current mortgage owed on it. The lender will then receive all the monies and can choose either forgive the outstanding amount or pursue the borrower for the remaining debt.
The benefit of this to the homeowner is that it avoids foreclosure and the credit damage that this can do.
Things sellers need to know
The main and obvious benefit for a seller of a short sale is that it avoids going through foreclosure and helps to take away some of the stress of unaffordable debt.
As mentioned above, if there is still a debt owed after the lender has been paid, the law does allow for the lender to pursue the borrower with something called a deficiency judgment.
If the lender forgives the rest of the debt, there may also be tax implications that need to be considered. A 1099 form will be sent to you with the balance that has been forgiven, describing it as income on your tax return. This will need to be taken into account when calculating the tax you need to pay.
One other important note is that a lender needs to approve a short sale going ahead. This is due to the fact that the sales often close at less than what’s currently owed, putting the lender in an undesirable position. This can make the process longer than any ordinary real estate transaction.
If you’re considering a short sale, having some legal help with the process will be really important to make sure your legal rights are protected.