Real Estate Community Forum

I am having financial problems and rather than letting my house go into foreclosure, someone told me that I should consider a short sale of my house. The term is very confusing to me so I was wondering if someone can explain it better?

In addition, are there any tax and credit consequences to this decision? I figure there must be some type of consequence when dealing with money and your credit.

Let's keep it simple. A short sale just means selling the house for less than what you owe. If we assume your house has a sale value of $200,000.00 and you owe $250,000.00, if you could sell the house for $200,000.00 and the bank agrees to accept that amount instead of the entire $250,000.00, you short sold your house.

Here is the problem. What happens to the $50,000.00 difference? In most instances you would have already negotiated a deal with your lender regarding this amount.

Generally speaking the lender would not have allowed you to sell the home or transfer title until upon satisfaction of the $200,000.00 and some agreement with the $50,000.00.

Note, the extra $50,000.00 could be waived by the bank but may be considered taxable income to you.

I know this all sounds complicated but it really is not. Try to find a good real estate attorney and it is worth spending some money to get an understanding of this process. Alternatively ask your accountant or local mortgage broker/real estate broker.

Be careful as some people think they know all the implications.

Good Luck!!!

A short sale means the seller's lender is accepting a discounted payoff to release an existing mortgage. Just because a property is listed with short sale terms does not mean the lender will accept your offer, even if the seller accepts it. Be aware that the seller need not be in default -- to have stopped making mortgage payments -- before a lender will consider a short sale. A lender may consider a short sale if the seller is current but the value has fallen. The seller may have over-encumbered, owe more than the home is worth, so a discounted price might bring the price in line with market value, not below it.