Advice on Short Sales

Short sales are alternatives to foreclosure when borrowers can’t manage their mortgage obligations. However, if you’re considering short selling your home, you must know about the severe financial risks. The California Department of Real Estate encourages homeowners that are thinking of a short sale to completely educate themselves at the mechanics and dangers of short sales and look to other alternatives before making a decision.


A short sale is an arrangement between you and your lender to sell your home for less than the worth of your mortgage balance. Short sales are initiated when borrowers can’t cover their mortgage or need to move to another place and are having trouble selling their property. Foreclosures are lengthy and costly processes, so lenders will sometimes accept a short sale to decrease their losses instead of risking the doubt of a foreclosure.


A short sale may be an alternative to a foreclosure but it includes dangers of its own. According to the California Department of Real Estate, you must know of three chief issues. To begin with, your lender could sue you to get the difference between the short sale price along with your mortgage balance. Secondly, if your creditors will”forgive” some of your debt, the IRS may tax any forgiven debt as a form of income. Finally, in case you have other debts secured on a property you short sell, your other lenders–also known as junior liens–might not be prepared to forgive the debt and could file a deficiency judgment against you demanding payment. Short sales can also be devastating from a credit rating standpoint. For credit rating companies, a short sale is just as poor as a foreclosure. Credit ratings are a part of a rating system lenders use to measure the reliability of a borrower. If your credit rating drops, your credit card interest rates could rise or you could find it harder to get a loan application accepted.

Safer Short Revenue

It is possible to avoid some of the dangers of quick sales by applying for a short sale through the Foreclosure Alternative program of the Creating Home Affordable Strategy. This federal program gives lenders–primary lenders and junior exemptions –incentives to”forgive” any debt following the short sale and grants homeowners up to $3,000 toward relocating costs.

Tax Breaks

The Tax Relief Act of 2007 allows homeowners to exclude earnings from”forgiven debt” following a short sale if the property was their primary place of residence. If the property you sell isn’t your main residence, such as vacation homes or investments, then you might still be eligible for a tax break. For instance, if you’re insolvent or the debt was discharged through a bankruptcy, then you could submit an application for exclusion.


If you’re considering a short sale, educate yourself and receive professional assistance before making a decision. The California Department of Real Estate recommends you seek the help of a certified real estate agent, an accountant, a lawyer and a HUD-approved home counselor. Consider other options before opting for a short sale. The Making Home Affordable Strategy provides struggling homeowners with Various mortgage aid programs, like the Home Affordable Refinance Program, the Home Affordable Modification Program and the Home Affordable Referral Software.

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