Top 3 Things Sellers Should Know About Short Sales
Do you owe more on your mortgage than you can sell your property for in today's market? A short sale may be an option, but you will need your Lender's approval. And you should know that your lender will not necessarily "forgive" the debt--you should pay close attention to what you sign so that you understand whether your lender is writing down the debt as a concession to avoid foreclosure, or if they're writing it down as a stop-gap until they come back to you for the amount they "forgive".
Here are a few things you should know.
1. You have to prove hardship.
To get the lender to release the debt to free it for sale, you'll have to prove that you can't make payments on the property or you must move and can't pay off the full loan. You will need to give the bank recent W-2s, bank statements and tax returns, so be sure to have the necessary documentation on hand.
2. Your credit will be negatively affected (although not as much as a foreclosure).
If the shortfall is forgiven, it won't hurt your credit as much as a foreclosure. However, you'll find it difficult to get another lender to extend credit to you any time soon. And remember, you may be required to repay some or all of the "forgiven" debt, so make sure you know what you're signing. You don't want a lawsuite to add to your troubles.
3. You may owe taxes on the debt.
Thanks to a 2007 bill, you won't owe taxes on the amount forgiven if you're selling your primary home. But if it's a vacation home or investment property, you will have to prove to the IRS that you're insolvent (that your total liabilities exceed your total assets), or cough up the money.
