News and Articles

February 8, 2010

What Does Short Sale Mean?

A Short Sale is when the homeowner owes more on their mortgage more than what the property is currently able to sell for in today's Real Estate market place.

This can occur for many different reasons. Equity lines of Credit where the homeowner takes money out of the equity of their home to pay off bills to an amount greater than what the house can sell for including closing costs.

Another possible scenario would be the type of loan the homeowner took out originally that may be an Interest Only loan with negative amortization and penalty fees for pay offs, 100% loans and Option Arm Loans. The homeowner now may owe more than the home is worth and would have to actually come up with the difference in the money in order to sell their house.

Short Sales are many times one of the first steps in the Foreclosure process. A Short Sale is definitely, a better option for the homeowner than Foreclosure.

The Short Sale process must be agreed to by the Lender, the mortgage holder. There is quite a bit of paperwork involved in this process where the Lender asks the homeowner to provide documentation proving their inability to keep up with the house payments. W-2's, pay stubs, tax returns are just a few of the items needed by the Lender. Lenders work with Realtors quite often on Short Sales.

Some Lenders would prefer a Short Sale rather than a Foreclosure. One very important item that all homeowners contemplating a Short Sale need to be aware of, is the difference in the amount that the Lender forgives (and some Lenders don't forgive), the IRS does not.

The IRS considers this amount as income and you may be taxed on it. If the homeowner decides to walk away from the mortgage loan by returning the property to the Lender, it is important to know that this will affect your credit. Remember, your credit is important when attempting to later rent.

A very important side-note is that a homeowner going through this process is many times bombarded with questionable people who offer their services at a very hefty price to the homeowner. You need to be cognizant of this and protect yourself by making sure that you are dealing with someone who really has your best interests at heart. In most cases when dealing with Short Sales it is suggested that you contact an experienced Realtor who can guide you through this process.

In summary,  most cases of short sales do not offer investors a significant opportunity to profit since the lenders are not always forgiving in the pricing, and can take a great deal of time to complete. This is yet another reason that tax deed sales, also known as tax foreclosure sales, these are properties that the counties have seized for non -payment of taxes by the homeowners.   Tax properties can offer below market pricing and gives built in equity to the investor.   Tax deed sales are known as a low risk high return, creating a more advantageous investment vehicle.   A new website called www.taxdeedlists.com has been developed to offer thousands of tax foreclosed properties and resources all the while giving you helpful links for you to conduct the research necessary when investing in property