What As A Short Sale And Its Benefit For The Seller
What is a Short Sale?
A short sale is a real estate transaction in which the seller sells their property for less than the amount they owe on their mortgage. The lender agrees to accept the lower amount as payment in full, and the seller avoids foreclosure and its negative impact on their credit score.
A short sale can benefit the seller in several ways:
It can help them get out of a difficult financial situation, such as losing their income, facing divorce, or having medical expenses.
It can reduce or eliminate their debt and avoid the legal consequences of defaulting on their mortgage.
It can allow them to move on with their life and start fresh in a new home or location.
It can preserve their dignity and reputation, as they can avoid the stigma and stress of foreclosure.
However, a short sale also has some drawbacks and risks for the seller.
It can damage their credit score, although not as much as a foreclosure. A short sale can lower their score by 50 to 150 points, depending on their credit history and the amount of debt forgiven.
It can trigger a tax liability, as the IRS may consider the forgiven debt as income and require them to pay taxes on it. However, there are some exceptions and exemptions that may apply, depending on the seller's situation and the type of property involved.
It can affect their ability to buy another home in the future, as some lenders may require a waiting period of two to four years before approving a new mortgage. Some lenders may also impose stricter requirements or higher interest rates for borrowers who have had a short sale.
It can take a long time and involve a lot of paperwork and negotiation. A short sale requires the approval of the lender and any other lien holders, such as a second mortgage or a homeowners association. The process can take several months or even years, depending on the complexity of the case and the cooperation of all parties involved.
Therefore, a short sale is not a simple or easy solution for sellers who are struggling with their mortgage payments. It is a serious decision that requires careful consideration of the pros and cons, as well as professional guidance from a real estate agent, an attorney, and a tax advisor. A short sale can be a viable option for some sellers, but it is not for everyone.
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