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Understanding Short SalesAs foreclosure rates hit record levels, more sellers are turning to short sales as a way to avoid foreclosure. So, how does it work? In a short sale, the seller arranges with their mortgage lender to accept a price that's less than the amount they owe on the property. As part of this arrangement, the lender typically agrees to forgive the rest of the loan. As a result, the seller doesn't have to go though a foreclosure, the buyer picks up a property at a discount, and the lender avoids taking on the burden of unloading the property.
Sounds good right? Well, sellers need to know that a short sale may damage their credit, though probably not as much as a foreclosure. Also, lenders generally will only agree to a short sale if the seller is many payments behind and has received a default notice. Buyers may get a great property at a discount, but they also will need to go through some extra paperwork too. Not to mention, they also need to be prepared to roll up their sleeves if that new property needs fixing up.
Summary: In a short sale, a seller facing potential foreclosure strikes a deal with their lender to accept less than they owe on the property, in exchange for avoiding foreclosure.
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Whether you’re in the market for a new home or considering selling your existing home, chances are you’ve heard of a short sale. Short sales are becoming increasingly common in parts of the country where home values have dropped substantially. Short sales can benefit those sellers facing the prospect of a foreclosure as well as buyers looking for a deal on their next place to live. However, short sales can also be tricky, so understanding how they work is essential. The following link will take you to an in depth article that further explains the process of a short sale.
Understanding Short Sales
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Is a Short Sale Right for You?
Saturday, July 11, 2009
The number of homeowners selling their home for less than the outstanding mortgage, known as short sales, is growing, according to government data. But it is still not an easy process. Here are a few things borrowers should consider when pursuing a short sale of their property:
1. Explore other options. Could you qualify for a loan modification that would make your home affordable? Your lender may be willing to lower the interest rate or extend the length of the loan to lower the payments.
2. Determine the current market value of your home and compare it to the outstanding balance on your mortgage. A real estate agent can help you determine market value, but homeowners can also look up recent sales in their neighborhood on the Internet.
3. A real estate agent with experience in short sales can be helpful in navigating the process.
4. Assemble your financial documents -- tax returns, pay stubs, bank statements. Lenders want to look at those documents as well as a hardship letter before approving a short sale.
5. Be patient. While some real estate agents say it is getting better, short sales are still a lengthy process and many deals fall apart.
6. Check to see if you are eligible for the $1,500 in assistance the Obama administration is making available to some sellers who participate in a short sale. That may help cover your moving costs.
7. Check with an accountant about tax implications. On investment or vacation homes, the difference between the sale price and the outstanding mortgage can be considered a taxable gift. This Internal Revenue Service page has more information: http://www.irs.gov/individuals/article/0,,id=179414,00.html.
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