5 Things You Should Know About Selling Your Home as a Short Sale

Many homeowners have avoided foreclosure processes by completing a short sale on their home. These types of sales have grown over the past few years. So, what is a short sale? Well, basically it is the process by which a lender agrees to the sale of a property for an amount that is less than the amount that is owed on the property.

Many people opt for these type of sale (if they qualify and are approved) because the damage reflected on their credit report is not as bad as if they had went through foreclosure proceedings. This is especially beneficial because the damage a foreclosure imposes on one's credit report can stick with you for up to ten years.

Although there are benefits to having a short sale, there are also disadvantages as well. These often include the I.R.S. considering any amount of debt forgiveness to be taxable income, which means the seller still owes taxes to the government for any debt that was forgiven. Also, many lenders will not agree to forgive any owed debt, which means the seller is still responsible for the difference between the selling price and the debt amount.

Some people who complete a short sale process avoid taxation by proving they are insolvent. However, if insolvency cannot be proved, for many homeowners it is more wise to just have their home foreclosed.

Below are a list of steps that generally take place during a short sale process:

• Any person considering being approved for the sale of their home must contact their lender to see if the lender even allows short sales.
• Sellers must sign a letter that allows the release of personal information regarding their loan to a buyer or escrow agency.
• Lenders will look over a settlement statement that has been drawn up, and from there they will decide on a minimal selling price, how much of the remaining loan balance will have to be repaid or forgiven, and determine any fees associated with the sale of the seller's home.
• The seller completes another letter known as a hardship letter, which provides details as to why they cannot afford their monthly mortgage payments.
• Lenders usually look over purchase agreements to make sure any offered amounts are reasonable, and also determine if the real estate commission fee is reasonable.

Many times a short sale process can take a lengthy period of time because there is much paperwork involved. However, the process is efficiently and effectively completed, all parties involved usually benefit. A buyer will typically purchase a property for a reasonable amount, the seller avoids foreclosure, as well as the lender gets to avoid foreclosure proceedings.

It is always important to discuss a short sale process with a competent lawyer, as well as an experienced accountant. The more education a seller obtains on how the sale will affect them, the more likely they are to quickly and simply complete the process, which will benefit all the parties.