Real Estate Short Sales
The recent decline in property values coupled with the inability to find prospective buyers has given rise to a dramatic increase in the number of short sales. A short sale occurs when the value of the property falls below the amount owing on the collective mortgages on the property and the owner is attempting to sell the property free and clear of all mortgage liens.
A short sale in and of itself contemplates a sale to a bona fide credit worthy third party who in most instances will obtain financing to payoff the existing liens for less than what is owed. That third party will in most cases want the house vacant so this also involves the seller moving with receiving no funds whatsoever from the closing.
The benefit to the seller is that they will be free of the burden of a property which but for the short sale was unmarketable. The ability to lower the sale price of the property opens up an entire new market of purchasers that would not otherwise purchase. Additionally, avoiding the otherwise inevitable foreclosure sale may be priceless since that might remain on one’s credit for up to 10 years inhibiting the purchase of another home. If for no other reason but the credit factor this in many instances in this market is the only way to proceed.
In most instances the lenders may, aside from accepting the short sale, also forgive the balance of the debt that is owing. Should a foreclosure proceed to an auction and there is a deficiency there are many times when the bank will pursue deficiency judgments and execute upon them. This is another compelling reason to negotiate a short sale with the lender and assist with finding a buyer for the premises so after the sale is complete there are no further burdens to bear.
There may be tax consequences from a short sale. The IRS does tax forgiveness of debt so an accountant should be consulted as far as the tax consequences. However, certain debt forgiven in a short sale may be exempt from taxation under recently passed changes to the tax code.