Selling a home for less than the mortgage takes a little more work than a regular home sale. With this information, sellers will understand what distinguishes a short sale, and what they should anticipate during the process.
What Is a Short Sale?
Although home prices generally trend upward, there are periods of time when the value of a home may drop. As long as the homeowner can continue making the payments as specified, this situation may correct on its own. However, if someone needs to sell a home that is worth less than the amount they owe, they may have to go through a short sale in order to eliminate the mortgage.
Why Are Short Sales More Complicated Than a Standard Home Sale?
Regular sales involve an agreement between the seller, buyer, and often a lender for the buyer's mortgage. A short sale introduces the owner of the seller's mortgage to the equation. Everyone must be in agreement with the terms of the sale in order for it to proceed. As a result, short sales can take longer and may have several failed contracts before they settle.
How Does the Short Sale Process Work?
When a homeowner realizes that they can no longer continue making payments on their mortgage, they should contact their mortgage servicer to ask about their options. Generally, the homeowner starts by telling the lender that they intend to seek a short sale. The lender usually has a number of requirements that must be met in order to approve a short sale. Sellers should gather the following:
- Information about the hardship that calls for the short sale
- Income and debt records
- Bank statements
- Preliminary estimate of the home's value, plus costs to sell it
If the lender approves the short sale, they will allow the seller to list the home for a particular price. In essence, a completed short sale means that the mortgage owner is accepting less money to discharge the mortgage debt. As such, their final approval is a necessity for any purchase contract to proceed.
Why Does the Lender Have to Approve the Short Sale?
Selling a home for less than it is worth means that the lender will shoulder some of the costs involved with the sale and lose some money on the total price of the mortgage. If the home has more than one mortgage through separate lenders, each one has to agree to the short sale because each stands to lose money from the process. As a result, lenders may cap the amount that a real estate agent can receive for selling the home, although they cannot change that amount after offers come in. They may also refuse to cover any expenses that the buyer requests, like upgrades or closing costs.
Are There Tax or Debt Implications in a Short Sale?
As a general rule, lenders want the home to sell for as much as possible. If they cannot achieve this goal, they may ask for the seller to pay the shortfall in cash or as an unsecured promissory note. In certain states, sellers may also have to count the shortfall as income on their taxes. Sellers should carefully consider these implications before deciding to do a short sale.
Selling a home as a short sale may be an effective way for Spring Hill homeowners to discharge mortgage debt without going through a foreclosure. By knowing the answers to these questions, people will be better prepared to start the short sale process.
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