How a Short Sale Works
In the Cedar Rapids area, there are some homes in foreclosure, and with markets in turmoil, who knows what the future will bring. A short sale is an alternative to foreclosure and a way to move on from a bad investment. Many have heard of a short sale, but few understand the concept. So let’s focus on how a short sale works.
How a Short Sale Works
What is a Short Sale?
The Windemere Blog says, “A short sale is the sale of a property for less than what the owner still owes on the mortgage. A short sale can occur when a homeowner needs to sell and can no longer afford to make their mortgage payments. The lender agrees to accept less than the amount owed to pay off a loan now rather than taking the property back by foreclosure and trying to sell it later. Lenders agree to a short sale because they believe it will net them more money than going forward with a lengthy and costly foreclosure process.
A Short Sale Won’t Save Your Credit Score
NOLO says saving your credit score may be the most touted reason for choosing to short sale your home rather than letting it be sold at a foreclosure sale, however according to myFICO, short sales, foreclosures, and deeds-in-lieu of foreclosure are all “not paid as agreed” accounts and are considered the same for purposes of your FICO score.
Short Sales Don’t Always Cancel the Remaining Debt on the Mortgage
When a lender approves a short sale, the lender agrees to what, exactly.? At the very least, the lender agrees to remove or release the lien on the property. A seller would have a near-impossible task in selling a property without this lien release.
Is the lender also agreeing to cancel the seller’s obligation to repay the loan in full? Not necessarily. Some lenders ask sellers to sign new, unsecured promissory notes before approving the short sale. Other lenders reserve their right to collect the deficiency — the remaining balance of the debt – without asking for new promissory note.
You May Owe Taxes on the Deficiency
If your lender forgives you for a deficiency after a short sale, you may owe taxes on the forgiven amount. That’s because it’s considered income by the IRS, upon which you may owe federal and state income tax. Under the Federal Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude from your income all or a portion of the amount of forgiven debt in a short sale.
<h4Hire an Attorney to review all documents
Since short sales are complicated transactions, it is recommended that you hire an attorney to review the documents. Release of lien and protection from tax deficiency are essential to your financial welfare.
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Harmony Property Solutions, LLC,
is here to help homeowners out of any distressed situation. As investors, we are in business to make a modest profit on any deal. However, we can help homeowners out of just about any situation, no matter what! There are no fees, upfront costs, commissions, or anything else. We offer you the simple truth about your home and how we pay cash for houses Cedar Rapids.
Harmony Property Solutions, LLC,
is part of a nationwide group of thousands of investors who are helping tens of thousands of homeowners every year. We may not be the “traditional” route, but we CAN help, and we can do it quickly!
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