While most lenders will not be thrilled at the prospect of a short sale they are acutely aware that a foreclosure
is usually a far more time consuming and costly option. In a real estate market where housing values are going
down it is in the best interests of the lender to liquidate their problem loans as quickly as possible. With a
short sale a property can be sold and the loan taken off their books fairly quickly.
As is mentioned in another article on this site, seller's who use a short sale to sell their home can, sometimes, still be responsible for paying taxes to the IRS due to the Discharge of Indebtedness or debt relief. However, it may be possible to avoid this tax liability if you are considered insolvent BEFORE you engage in the short sale. The details are somewhat complicated and if you are considering a short sale you should absolutely consult with a tax attorney or accountant who is familiar with the process as it could save you a substantial amount of money... more
Home sellers should consider a Short Sale when the value of their home is LESS than the amount of their outstanding loans. For example, if your home is worth $250,000 but you have a loan of $260,000 then a short sale is a consideration.
Obviously, if you do not have to sell your home, you could wait out the market and hope for a turnaround in real estate values. However, if you do have to sell your home you basically have three options. First, you can bring cash to the table. In the example above you would sell your home for $250,000 and pay another $10,000 to the lender out of your pocket to pay off the loan on your property. Second, you could let the home go into foreclosure. The lender will go through the foreclosure process, force you out of your home and then auction it off to the highest bidder at a foreclosure or Trustee's auction. The third option is to pursue a short sale. more...
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Many homeowners do not realize that they may be in store for a large tax bill from the IRS after the short sale of their home. Every situation is different and you should absolutely contact an accountant or tax advisor before conducting a short sale to determine your potential liability. As an example... more
Lender's require that certain information be given to them before they will consider a short sale. This information is usually referred to as the 'Short Sale Package'. The package consists of a number of documents... more
The Hardship Letter is usually part of the short sale package and is written by the seller or their representative. It is used to explain to the lender the reasons for the borrower's need for a short sale. Reasons such as divorce, job loss, medical issues, etc. can be included. more
The Broker's Price Opinion or BPO is typically needed by the lender in order to get an idea of the true market value of the property. Some lenders have their own agents or appraisers that conduct an inspection of the property to determine value while others rely on the opinion of outside agents or others. The BPO... more