One of the main household bills that people usually fall behind on when they are having financial difficulties is the mortgage. When people realise that they cannot maintain their current mortgage payments, they start thinking about the possibility of their home going in to foreclosure. There are other options besides a home foreclosure, and one of the most popular alternative options is a short sale.
Short sale process
When a homeowner goes through a foreclosure, it is the lender who suffers a huge financial loss. Most lenders try to minimise their foreclosure losses, by allowing home owners to conduct a short sale (which is also known as a quick sale) on their property.
What is a short sale?
A short sale is when a homeowner sells their property for a lesser amount, than what is actually owed on the mortgage. Qualifying for a short sale
Not all homeowners can qualify for a short sale, because the mortgage company must review a variety of factors before considering whether to allow a short sale to take place. The qualifications for a short sale are consistent among all mortgage lenders. Low home value
They first look for a decrease in the home's value, to make sure that the property is worth less than the unpaid mortgage balance. The mortgage lender will also want to make sure that the homeowner's mortgage is in or near default status, but if it is not, then some lenders will still consider approving a short sale based on other factors. Proof of hardship
One of the last qualifications is that the homeowner must prove they are experiencing a financial hardship, and this is usually done with a letter explaining their financial problems. Some examples of a financial hardship are unemployment, divorce, bankruptcy, or a sudden illness. Moreover, the mortgage lender wants to make sure that the home owner does not have enough liquid assets to make future mortgage payments.
Downside to a short sale
Before a home owner sells their home as a short sale, they should be aware of the consequences that they may face. A short sale will affect a person's credit score, and show on their credit report. Even though a short sale does not affect a person's credit score as bad as a foreclosure, it still has negative credit implications. Tax issues
A short sale also brings along tax issues. A lender who approves a short sale, may issue the homeowner a 1099 for the shorted amount. The homeowner must claim the shorted amount as income when they file their taxes, and they will be required to pay taxes on that amount.