Mortgages & Creative Financing

Top 5 Questions About Short Sales

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79 Articles Written

I spend a small part of each and every day answering questions that come through my email inbox about short sales. Over and over, I see many common questions. Seems that inquiring minds want to know the answers to all of the same things. Here’s my top five:

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1. How will a short sale affect credit?

Depending upon how the short sale is negotiated, the agreement made at the bank and the way the bank reports the short sale to the credit-reporting agencies, it is possible that the short sale could have only a small impact on credit score. However, the missed mortgage payments (if there are any) will have a negative impact on credit.

2. What are the tax consequences of a short sale?

Short sale sellers should always consult with an accountant regarding the possible tax consequences of a short sale. President Bush did sign into law the Mortgage Debt Relief Act of 2007, which does have positive tax consequences for those who participate in the short sale of an owner-occupied property.

3. Why is a short sale better than a foreclosure?

 
When a seller participates in a short sale, s/he will avoid the foreclosure ‘ding’ on the credit report. That being said, it may not be better to participate in a short sale. Consult an attorney and/or an accountant to help decide what is best for you.

4. Can a person participate in a short sale if they have no late mortgage payments

The simple answer is ‘yes.’ If an individual has a verifiable hardship, then they can participate in a short sale.

5. My seller’s foreclosure date is 2 weeks away. Can he still participate in a short sale?

Many lenders will postpone a foreclosure date if they have a complete short sale package from the seller and the seller's agent. This package must include a purchase contract as well as important financial information. Without these items, lenders will not postpone a foreclosure date.

So, there you have it. Top five short sale questions so far this summer are answered for you here. Now, go out and enjoy your summer!

Photo: flickr creative commons by Ishmael Orendain

    eric
    Replied over 8 years ago
    great article. I would like to add that “legitimate” hardship is required when doing a short sale. 😉 Also tax benefits can only be enjoyed if the person is insolvent at the time the short sale occurs. In case of extreme urgency, one might consider filling bankruptcy to stop a foreclosure proceedings. Of course, this is a lesser-of-two scenario and shouldn’t be considered on a whim. Don’t take my word for it. Talk to a competent accountant and attorney first. Reply Report comment
    eric
    Replied over 8 years ago
    great article. I would like to add that “legitimate” hardship is required when doing a short sale. 😉 Also tax benefits can only be enjoyed if the person is insolvent at the time the short sale occurs. In case of extreme urgency, one might consider filling bankruptcy to stop a foreclosure proceedings. Of course, this is a lesser-of-two scenario and shouldn’t be considered on a whim. Don’t take my word for it. Talk to a competent accountant and attorney first.
    Holly Garber
    Replied over 8 years ago
    Great way to give a breakdown of how short sales affect people’s lives. It’s worth noting that if your loan is with a small town local bank it is less likely that it will appear on one’s national credit score. Often (not always!) they will keep their loans “in house” and not sell them on the secondary loan market. This can also mean that they do not report to the national credit reporting agencies. An added blessing is the flexibility in negotiating with them because they have local decision makers. I have seen short sales close in as little as 2 weeks with a local lender as upposed to the sometimes months long process with larger banks.