Short Sales Explained

Roby V. Pagong asked:

Many do not understand what a short sale is. Some may have heard of it but have not fully fathomed what it is really about. A short sale takes place when real estate is sold for much lesser value than the loan balance. If this were the case, you would wonder why the lender or the seller would agree to it, right?

Obviously, this type of transaction is not favorable for many sellers or lenders. This is especially difficult for the homeowner. They sell the property they love for a lesser value just to avoid foreclosure. Short sales have become so popular these days. This is because lender would rather agree to this than to incur a much bigger loss.

However, most lenders would not agree to this especially if they have assessed that it would be better to have the property foreclosed. However, not all properties qualify for this. If you are considering this, you should first learn how to qualify for it. Here are some of the things you need to qualify for short sale:

1. Default in mortgage payment – If you can no longer be current with your payment due to circumstances like medical or health conditions, job loss and other similar circumstances, it would be possible for your lender to agree with a short sale. It is understood that with your current situation, you are no longer earning the same amount as you used to, thus paying the mortgage on time is close to impossible.

2. The market value of the property has dropped – It should be established that the value of the property is less than the amount of the unpaid loan balance. This would more likely convince the lender to agree to a short sale.

3. If you have fallen to a hard time – You have to send a letter of hardship to your lender, stating why you will no longer be able to afford the payment for your monthly mortgage. However, you have to keep in mind that not all hardships are acceptable for lenders. A growing family does not constitute hardship. Some of the more acceptable hardships are bankruptcy, death, divorce, medical concerns and expenses, and unemployment.

4. The seller no longer has assets – This is essential for most lenders. That is why they would require a copy of the tax returns of the seller. If the lender finds out that the seller has certain assets left, he may not agree to the short sale because he will think that the seller still have means to pay the mortgage.

Most lenders would opt for this because of the losses they have encountered in the past. However, this does not mean a happy ending for the seller because he will face certain consequences. One is the tax consequences. He has to discuss this in detail with his real estate lawyer. If there are any short sale tax consequences, he will ***** if he can afford to pay them. In addition, short sales will greatly affect his credit records as well. Although it is not as great as what foreclosure would do, his FICO score will significantly drop.

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