Ever since the real estate market crashed, many home buyers have never been able to recover from the financial bleeding they are faced with. Among the various financial strategies such as refinancing of loans and re-negotiating the mortgage payment terms, sometimes the only option left is a short sale. This is the right option in a situation where refinancing is not possible and other strategies fail to reduce the financial burden and losses.
In case of a short sale, the homeowner will sell the home for a value that is lesser than the total amount owed on the mortgage. For instance, if the homeowner owes $ 300,000 to the bank, but sells the home for $ 200,000 only, it is a short sale.
This strategy works in situations where the lender will agree to allow the sale take place for an amount lesser than the mortgage balance. Lenders may agree to such an option when, according to their calculations, the costs and trouble associated with a foreclosure is higher than the realization that is expected from this option.
There may be tax relief associated with a short sale, which works out to the advantage of the homeowner. In normal conditions, if a debt is neutralized, the taxes are still required to be paid on the canceled amount.
However, under the Mortgage Debt Relief Act, most taxpayers are able to exclude the assumed income from the retiring of debt on their principal residence. The challenge with is that it is usually more time consuming and complicated compared to other options. But it is worth the effort where the other options such as a foreclosure are going to result in a poorer value realization.
To ensure that this is a suitable option worth considering, the homeowner should firstly evaluate the comparable sales in the local market. If the market indicates that the current value of the home is worth less than the remaining mortgage, it is a prudent idea to consider a short sale.
Secondly, the homeowner should be able to show that he or she is unable to pay the different amount to the lender in this event. Bankruptcy, loss of a job, serious illness, and disability are some of the typical personal difficulties that can show the inability of the homeowner to repay the difference in the amount owed.
Comparing a Foreclosure to a Short Sale *
Many real estate experts are of the opinion that while the downside of a short sale is that it can hurt the homeowner's credit; they know the consequences and realities of a foreclosure can be far more hurtful. In case of a foreclosure, the person may have to undergo a 7-year wait before becoming eligible to buy another home, but in a short sale the waiting period may only be two to three years. Credit scores may be hit or negatively impacted more in a foreclosure than in this option as well.Immobilienmakler Heidelberg Makler Heidelberg
Source by Jennifer A. Steele