What is a Short Sale?
When owning a home, a short sale occurs when a bank or mortgage lender agrees to discount a loan balance of the home due to an economic hardship. Home owners can then sell the mortgaged property for less than the outstanding balance of the loan, and turn over the proceeds of the sale to the lender in “full satisfaction of the debt�. The lender would have the right to approve or disapprove of a proposed sale.
A short sale typically done to prevent a foreclosure. Banks are in favor of short sales since they often result in a smaller financial loss than foreclosing.
For the home owner, they avoid foreclosure and foreclosure report on their credit history. Additionally, a short sale is typically faster and less expensive than a foreclosure.
A short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed on a piece of real estate, short of the full debt amount.
GOOD NEWS:
The Mortgage Forgiveness Debt Relief Act of 2007
When the lender decides to forgive all or a portion of your debt and accept less, the forgiven amount is considered as an income for the borrower and is liable to be taxed. However, After the signing of The Mortgage Forgiveness Debt Relief Act of 2007 by President Bush, amendments have been made to remove such tax liability and allow the borrower and lender to work freely together and find a common solution that is beneficial to both the parties.
