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Short Sales

First of all let’s define what a short sale is, a short sale occurs when a homeowner receives an offer from a buyer which is lower than the balance owed on the mortgage.  Unfortunately this situation is much more prevalent nowadays since housing values have declined drastically in the last few years.  Today, however, due to overwhelming market changes, banks and lenders have become much more negotiable when it comes to these transactions. Recent changes in corporate policy and the Obama administration have also improved the chances of getting a short sale approved.

How do I know if I qualify for Short Sale? 

Borrowers need to prove that they are experiencing a substantial financial hardship.

What is a Hardship? 

Most lenders will consider allowing a Short Sale if there has been a change in circumstance after the loan was initially obtained:

  • Separation or Divorce
  • Medical Bills 
  • Inability to work due to health reasons 
  • Death of Spouse
  • Job Relocation 
  • Reduced Income or Unemployment 
  • Business Failure 

Did you know that until recently, mortgage debt on a primary residence that was forgiven from a Short Sale or Foreclosure could be counted as “taxable income” by the IRS? 

The good news is that on December 20, 2007, the Mortgage Forgiveness Debt Relief Act was signed into law. Effective from January 1, 2007 through December 31, 2009, any forgiven or “cancelled” primary mortgage debt from a principle residence, or debt used to improve the residence, will not be taxable.  The limits are up to $2,000,000 for married couples filing jointly, or $1,000,000 if filing separately. The Emergency Economic Stabilization Act of 2008 extended the time period through December 2012. Be aware, however, that second mortgages (not used to initially buy your property) and home equity lines are not exempted.

How will a Short Sale affect my credit? 

A short sale or foreclosure are both similar derogatory events on your credit score.  However, a short sale will have a lesser impact on your future ability to borrow than a foreclosure or deed-in-lieu of foreclosure.   Fannie Mae, the nation’s largest backer of mortgages, has announced recent favorable changes regarding its view of Short Sales and how they affect the credit-worthiness of borrowers.  In fact, you may be able to purchase a new home in as little as  2 years after a Short Sale, or even sooner depending on your payment history and your arrangement with your Short Sale lender. The Fannie Mae policy clearly indicates that Short Sales are preferable to deed-in-lieu of foreclosures and straight foreclosures.

” A Short Sale can be difficult and stressfull but successful”