The field of Real Estate has many questions and terms that can become confusing. To answer the question: What does Short Sale Mean? We can make the answer quite simple. A short sale happens when a homeowner has more money they owe for their mortgage that what the property value currently would sell at during the real estate market in today’s world.
What does Short Sale Mean? There are many reasons a Short Sale may happen.
A short sale can happen for a variety of reasons. The homeowner may have taken an equity line of credit out on the home. This line of credit is used to pay off some of their bills which may be greater that the amount that the house would sell for including the amount of the closing costs.
Another reason for a short sale if that the homeowner has a loan they originally took on the house that may be called an interest only loan.http://homeguides.sfgate.com/short-sale-mean-buyers-7232.html This loan would have a negative amortization as well as pay off penalty fees. Due to the interest, the homeowner might now owe more for the house that the price they could actually sell it for and they would need to come up with the difference between the selling price and what is still owed on the home.
When are Short Sales done?
When it comes to answering: What does Short Sale Mean? Another thing that should be discussed is when short sales actually take place. Most of the time, short sales are a first step when it comes to foreclosing on a house. The short sale is by far, a better choice for homeowners than going through with a foreclosure.
What must happen for a Short Sale to take place?
In order for a short sale to take place, there must be an agreement between the lender and the holder of the mortgage. There is a lot of paperwork to complete with the process of a short sale. The lender would request proper documentation from the homeowner. This documentation would prove their incapability to keep paying the payments on the house. Some of the proper documentations may include pay stubs, W-2s, or even tax returns. There are even more documentations than this that are involved in the process of a short sale. Many lenders will often work with the realtors to complete a short sale.
There are lenders who would rather do a short sale than do a foreclosure. One thing that every homeowner should know about before they go through with a short sale is that the amount that the lender might forgive, the IRS won’t forgive. The IRS takes the amount of the difference as part of your income and you might even be taxed on the amount. The homeowner can just walk away from a loan for their mortgage by giving the property back to their lender. However, it must be noted that this situation would also affect the credit of the homeowner.
If you are going to consider a bankruptcy through the Chapter 13 or the Chapter 7, it is very important that you first meet with an attorney in the field of real estate, so you know what the long and short term effects on your credit will be.