A Short Sale May not be the Answer to your Problem
Many homeowners today have found themselves in the position of facing
foreclosure when they can no longer pay their mortgage and wondering
what they can do to save their long term credit rating. The option that
many of these homeowners have turned to is known as a short sale. In a
short sale, the home is placed on the market for an asking price that is
less that the balance on the mortgage. Provided the lender agrees to
this type of deal, the original homeowner is allowed to get out of the
mortgage and avoid foreclosure as well as a long term negative hit on
their credit rating.
It sounds like an ideal answer to a big problem, but some homeowners may
find this solution not as picturesque as it first appears. In theory a
short sale would be completely final and the lender would agree to
forgive the balance on the mortgage, taking a small loss rather than the
more significant loss they would face if the house had to be foreclosed
upon. This would allow the homeowner to be relieved of a mortgage they
could no longer afford to pay and avoid the rather serious hit that can
occur from a foreclosure. As a result, some homeowners make the
assumption they can walk away from a short sale, no longer owning the
bank and retaining the ability to purchase another more affordable home
in the near future.
Theory is not always reality; however. In some instances the lender will
instead require the original homeowner to be responsible for at least a
portion if not all of the loan deficiency. For instance, if a homeowner
is nearing foreclosure and owes $250,000 on their mortgage and sold the
home through a short sale for $230,000, the bank might then require the
homeowner to be responsible for the remaining $20,000 on the mortgage
loan. In any short sale situation the lender must always provide
approval to release the homeowner from their obligation. When a
homeowner asks the lender for permission to sell for less than what they
owe, the lender might agree to provide permission for the sale to take
place, but could potentially still come back and try to recoup the
remaining balance from the homeowner.
This is why it is imperative that any homeowner who is considering a
short sale have legal representation to ensure their best interests are
represented in the transaction and that ultimately the bank will not
attempt to pursue the homeowner for the loan deficiency. Without that
type of protection, the lender has every right to go after the homeowner
for the remaining balance, which can ultimately end up being thousands
of dollars. The cost of a lawyer in this instance would be well worth
the peace of mind and protection and could very well be less than what
the homeowner would be responsible for if tagged for the loan balance by
the bank.
Homeowners should also understand that even if they do proceed with a
short sale that does not necessarily mean they can purchase another home
in the near future. While a short sale often does not have the same
impact on a credit rating as a foreclosure that does not mean that you
can escape completely unscathed. You will be required to state on future
credit applications whether you have ever been involved in a deed in
lieu of foreclosure. In other words, a short sale. Many lenders are
somewhat wary of granting approval for a loan soon after a short sale or
a foreclosure. The amount of time that must pass between a short sale
and being able to become qualified for a new mortgage varies, but you
should not expect it to be within the next few months. Not stating the
truth on a credit application can pose serious legal implications.
In addition, homeowners may also wish to consult an experienced tax
consultant or tax attorney. If the bank does not go after the homeowner
for the remaining loan balance, the homeowner could still potentially be
liable for taxes on the balance of the loan. This is because the IRS
views the forgiveness of the loan balance as a form of income.
A short sale may very well seem to be a good solution and certainly can
be, but only when you make sure you are well informed and have taken
steps to ensure that all of your best interests are protected ahead of
time.
|
