What is a Short Sale?
It is when a bank agrees to accept less than what is owed as "payment in full", in an effort to avoid the foreclosure process. The bank agrees to "write-off" and forgives the remaining portion owed.
Why would a mortgage lender agree to a Short Sale?
-Because real estate and foreclosure laws vary from state to state, the foreclosure process can take a very long time and may tie up both their financial and legal resources as they try to keep up with the different requirements in each state. This lengthy process can be very expensive for the company.
-If a Bank forecloses, the most they can hope for is to sell the property at market value. They would rather just allow a short sale, and avoid having to market and maintain the property themselves.
-Many lenders have to hold cash in reserves to balance the value of the REO properties that are on their books. Many times, this amount can be 3 time the value of the properties themselves. The more money they have to hold in reserve, the less they are allowed to lend. Mortgage companies are in the business of lending money, not selling real estate. They are more likely to just cut their losses with a short sale, so that they can go about their normal business.
What are the requirements to begin the process?
You must be behind on payments
You must have suffered a hardship (not always just a financial one)
You must have little or no equity in the home
And that's it.
Will I be responsible to pay taxes on the amount forgiven?
You may be exempt from having to claim the forgiven amount on your taxes under the "Mortgage Forgiveness Debt Relief Act of 2007".
By Joshua Talayka
PressSearch.org
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