At the center of the foreclosure crisis, you will find millions of homeowners facing foreclosure. In most cases, these homeowners have little or no equity left in their homes, making it impossible for them to sell their homes to pay off their mortgage debt or refinance. For these reasons, a short sale option is usually considered.
Basically, a short sale agreement involves the lender agreeing to be paid an amount that is less than what is owed to them in terms of mortgage debt. If the lender agrees, it is considered that all mortgage obligations of the distressed borrower are fully-satisfied.
With the bad housing market conditions, short sales have increasingly become popular among lenders and borrowers since both benefits from such arrangement. The borrower avoids a nasty foreclosure and the lender saves money in holding costs and recovers a portion of the mortgage debt easily. Although the lender will suffer some losses, some of them accept this as business losses.
If this option is looking more and more attractive for you, you should know that most lenders will only agree to a short sale if you provide sufficient evidence that you are no longer capable of paying your mortgage debt. If you are found to possess liquid assets, which can be used to pay for the mortgage debt as well as the losses that the lender might incur, then your request for a short sale may be declined.
In addition, the lender must also agree that the difference between the mortgage debt and the proceeds of the short sale must be forgiven. Otherwise you will have to pay off this difference and be taxed for it as well.
Lastly, a short sale will mean defaulting on your mortgage first before any negotiation with the lender can be explored. For this reason, you will have to deal with the negative impact of this default on your credit record.
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