What is a “Short Sale” and How it Benefits You?

• A short sale is when the lender through negotiation accepts an amount less than what is owed on the homeowner’s home, allowing the homeowner the ability to sell their home. A short sale should be done when the homeowner has talked to a Housing Counselor, has talked to their lender, and has possibly talked to an attorney, and if none of the available options will work for them, then it should be preformed before the home is sold in foreclosure.

• As a last resort, a Short Sale is a benefit to both you and your lender. It mitigates the Lenders loss (according to Inman News, the average foreclosure costs a Lender $40,000) and reduces the impact of foreclosure to your credit. Remember the bank does not want your home and your credit is very important to you.

• A foreclosure could damage your credit by 350 or more points. A short sale can impact you credit score for about 100 points. So if your credit score is 680, a short sale can impact and reduce credit to 580 or less. But compared to a foreclosure which will reduce the credit score to 330 or less.

• A Short Sale can have both legal and tax consequences. If the Lender issues a 1099 for the forgiven dept (the amount between what is owed and what was received by the bank from the sale of the homeowner’s home), and sends it to the IRS for the homeowner to be taxed on. However, the IRS is not taxing foreclosure forgiven debt. Please consult your tax accountant. In addition, if a 1099 is not issued, the Lender can sue you in a court of law up to six years latter in Colorado. Please consult an attorney for matters of law.

• Banks have been order by Fannie Mae, Freddie Mac, and FHA to try and work out things with the homeowner. If this cannot be done, then they must be prepared to do a short sale.

Always be proactive and contact your lender if you think you will have problems making your mortgage payment.

For Tips on Preventing Foreclosure.

Do not wait six days before your home is sold by the State Trustee. It is best to do a Short Sale before the lender has filed with the State Trustee and the Trustee has not issued the Notice of Election and Demand. Because once this is done, you have only 120-126 days before your home will be sold in foreclosure auction. You can still sell your home and do a short sale during this period, but time is of the essence. Foreclosure Page