Short Sales can Help Prevent Home Foreclosures

By Sheryl Landrum
Mortgage Credit Problems Columnist

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Record numbers of homeowners, unable to maintain their current mortgages, are opting for foreclosure. Is there another option to home foreclosure? Learn how short sales may help you avoid a home foreclosure.

Homeowners facing a foreclosure proceeding should contact their lenders to see if the company will accept a short sale. A short sale involves selling the home even if the sales price is less than what's owed on the mortgage. The lender has to agree to accept this and in most states you are then relieved of the obligation to the lender for any shortfall. Many lenders prefer a short sale to foreclosing on a mortgage if it makes financial sense; however, there can be some drawbacks to a short sale and you should always consult a real estate attorney and a tax accountant to discuss the ramifications. Home foreclosures carry stiff credit repercussions; however, some of the drawbacks may consist of:
  • Debt forgiveness is considered taxable income by the IRS and you could easily end up with a large tax bill.
  • While your lender may grant you a short sale versus a home foreclosure, in some states there is no guarantee they won't pursue you for the difference between the amount owed and the amount paid.
  • A short sale will not absolve you of property tax debt that is owed.
  • Chances are your credit report will show a "charge off" to the lender as well as document the late payments; however, you can request the lender not report you to the credit agencies as part of your negotiations.
Short sales, like home foreclosures, are best negotiated with professional advice. Next week we will discuss how to reach an agreement with your lender about a short sale and what they will need from you to determine whether a short sale or  home foreclosure is merited.

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