Questions About Short Sales: What is a Short Sale?

short sale foreclosureThe term “Short Sale” is used in the real estate business to describe a situation where the current fair market value of the property is less than the debt owing against the property. In other words, the Seller can’t sell the property unless the creditors (“Third Parties”) agree to accept a payment that is less than (or “short” of) the amounts actually owed to those Third Parties. The Third Parties may include mortgage lenders, mortgage insurers, bankruptcy trustees, and federal, state and local taxing authorities (such as the IRS or State Tax Commission) or other lien holders. In some cases, the difference is forgiven by the lender, and in others the homeowner must make arrangements with the lender to settle the remainder of the debt.

To put it simply, a short sale is a transaction where the lender, or lenders, agrees to accept less than the mortgage amount owed by the current homeowner. In some cases, the difference is forgiven by the lender, and in others the homeowner must make arrangements with the lender to settle the remainder of the debt.

What does Third Party Approval mean?
A Short Sale requires the written approval of the Third Parties. The Third Parties may include mortgage lenders, mortgage insurers, bankruptcy trustees, and federal, state and local taxing authorities (such as the IRS or State Tax Commission) or other lien holders. Consequently, the Seller of the property and any Buyer is advised that even if they reach an agreement with each other for the purchase and sale of the property the Buyer’s obligation to purchase, and the Seller’s obligation to sell, are respectively conditioned upon Third Party Approval of the Short Sale.

Why is the number of Short Sales rising?
Due to the recent economic crisis, including rising unemployment, and drops in home prices in communities across the nation, the number of short sales is increasing. Since a short sale generally costs the lender less than a foreclosure, it can be a viable way for a lender to minimize its losses.

A short sale can also be the best option for homeowners who are “upside down” on mortgages because a short sale may not hurt their credit history as much as a foreclosure. As a result, homeowners may qualify for another mortgage sooner once they get back on their feet financially.

What are the Tax and Legal ramifications of a short sale or foreclosure?
Anyone considering a short sale or foreclosure needs to understand that participating in a Short Sale transaction or having a property go through foreclosure may have negative legal or tax consequences.

WE ADVISE YOU TO CONSULT WITH YOUR ATTORNEY OR TAX ADVISOR IF YOU DESIRE SPECIFIC LEGAL OR TAX ADVICE.

 Source: www.blackhawkrealty.com

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