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Top 5 Things You Need to Know About a Short Sale

April 10, 2012 | Comments: 0 | Views: 90

Lots of new short sale laws have been made since the foreclosure problem commenced back in 2007. Almost all of which are intended for allowing the seller to obtain good success in a short sale. Even with this, many people still don't comprehend most of the dangers a short sale has on them. Here is a list of the top 5 factors you should certainly know about short sales.

You have to have a hardship...

Plenty of people feel like since their residence is valued at less than what they obtained it for that they will need to sell it to escape from the payment. The truth is, if you can find the money for the payment, there is no reason to sell. If you will continue to make your monthly obligations, you will at some point owe nothing on the property. In past generations, this is what everyone did. They bought a home and stayed in it well after their financing was closed. There are lots of examples of what a legitimate hardship is and you will really want to compose a hardship letter to show your scenario.

Forgiveness it taxable...

If the creditor does say yes to a short sale, 1 of 2 bookkeeping activities must come to pass in order for the lender to be able to balance their records. They will either forgive you of the residual balance and deliver a 1099, or they will go after a judgement or collection from you for the debt remaining. A 1099 for forgiveness of debt is technically a taxable event. You really need to seek the help of a CPA to verify your situation. There are ways to avoid this tax, like proving you are bankrupt or with the Mortgage Debt Relief Act. In any event, this will add an extra step the next time you file your taxes.

If they foreclose, do you still owe?

Depending on the state you dwell in, the creditor may still be given the chance to pursue you for the left over balance even after they take the house back. This data may affect the way your loan provider negotiates with you. Usually a short sale can result in a staring contest between the seller and the bank. The mortgage lender uses the possibility of foreclosure to try and demand the seller to offer money towards the sale or taking a loan to repay a chunk of the loan. The seller can use the threat of foreclosure to encourage the creditor to reflect on any offer that comes over because the banks only alternative would be to take the home back and sell it on their own. The short sale is often the most obvious and most cost-effective option for the loan company. The main point here is that you'll need to be aware what your state laws are related to what the creditor can do if they foreclose.

Seller CAN receive revenues from the sale.

A lot of people think that because the financial institution is accepting a loss that the home owner can not receive any money from the sale of the home. In truth that there are a great number of programs available now that allow the seller to receive a relocation expense or just a lump sum of money at the closing. A couple of these programs are government programs and others are an outreach by the loan providers to work through some of their distressed loans. Nevertheless, the home owner CAN acquire profit at closing oftentimes.

You may still owe the lender even after the sale is complete...

Despite selling the home in a short sale, the lender could have put in their approval notice that they have not agreed to concede the leftover balance. This is know as a deficiency balance. Unless the approval letter expressly says that they release you from all funds, you could potentially still owe the creditor money after completing a short sale. California short sale laws have newly been incorporated that require all loan providers to relinquish this balance when completing a short sale in that state. Unless you reside in California, you would certainly want to be certain that your approval letter frees you from the liability all together.

Be sure to check the short sale laws in your state for more information.

Source: EzineArticles
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