As the real estate crisis and slumping economy continue to squeeze homeowners, many have sought to escape their mortgages by conducting a short sale of their properties. A short sale is a transaction whereby the owner sells his home for a lower amount than what is owed. The lender must accept the deal, and stories have been circulating of buyers and sellers waiting several months before hearing a decision from the bank. So, is this technique the best answer?
Refinancing and loan modification are more efficient, and lenders such as Countrywide are much more accepting of these programs than a short sale. But if circumstances prevent you from qualifying for these loans, a short sale may get you out from under an unmanageable situation. There are two reasons a bank may accept a short sale: 1) the costs of foreclosure can cost a lender up to 18% of the loan amount, and 2) lenders do not want to carry properties on their books.
Not all homes qualify for a short sale, says our personal financial expert Nathan Threebes. "There must be evidence that home values have dropped in your area, the loan must be in or near default status, and the seller must show that financial hardship and a lack of assets prevent her from making up the difference," Threebes says.
There are two major consequences to conducting a short sale. First, according to the Mortgage Forgiveness Debt Relief Act of 2007, the IRS allows lenders to issue a 1099 form for the forgiven amount, which you must report as income. Second, your credit report will be blemished though not quite as severely as a foreclosure (but creditors may not see a distinction as your FICO score lowers almost equally).
Under new Fannie Mae guidelines, conducting a short sale versus allowing a foreclosure may shorten the waiting period between the sale and obtaining a decent rate for a new home. Homeowners considering using this strategy are advised to seek professional advice.Immobilienmakler Heidelberg Makler Heidelberg
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Source by Man Bothe