What is a short sale?

Occasionally, a person facing foreclosure or needing to sell a home to get out from under the payments can find a buyer who will pay a price for the home, but it may not be high enough to cover what is due on the loan. If the seller can make up the difference, then it is not a problem. But what about when the seller needs the property of his/her hands, does not have the cash to make up the difference and can't find a buyer willing to take the property for a high price? There are ways to sell the home to the buyer who is willing to buy under the ideal price.

Many lenders would rather offer a short sale to the borrower rather than try to foreclose on the home. With foreclosure rates higher than ever before, lenders have lots of foreclosure properties to try and sell on their hands already. And take in to consideration that it costs money not only to foreclose, but also to repair any damages and sell the home, and you have a lender that would rather do anything than foreclose.

Short sales offer the lender the advantage of not enduring the costliness and time involved in foreclosing on the home. A short sale happens when the home sells for less than what it takes to satisfy the mortgage. The lender must agree to the short sale, or you are out of luck. But seeing that it is more beneficial to the lender in most cases, many lenders will accept a short sale if they feel that you are really in need of it.

If you think this may be a good choice for you, start by contacting the lender. You need to know what the lender will be willing to do and make them aware of the situation you are in. Most lenders will be more inclined to work with you when you are open and communicate with them regularly. If the lender implies that there may be a possibility for a short sale, it is time to start doing some research.

You need to know what your home is worth and what you might be able to get for it if placed on the market. You also need to take into consideration all closing costs that will be associated with the sell of the property. Consider using a licensed real estate to help you sell. You may be able to get more for the home and you will have access to all the tools an agent can provide, including a manageable pricing range for your home. Stay in contact with your lender throughout the process. They will most likely want what is best for you here because the better it goes for you, the more likely they are to be paid.

You do need to realize that a short sale will likely show up on your credit even if the lender requires you to pay back what was due to them after the sale, which sometimes happens. You need to ask your lender how they will report it and if you are required to pay back anything short of the actual amount due. If so, you will need to plan for this and work with the lender on how this can be accomplished.

Be aware of, too, that the Internal Revenue Service recognizes that extra amount you didn't have to pay as income in most situations. This means you will need to think about how this will affect the taxes you will have to pay. All in all, if you realize there are consequences associated with a short sale, it can still be a great way to avoid the more painful avenues of bankruptcy or foreclosure.