Q: What is a short sale?
A: A short sale is a situation where the homeowner owes more money on the loan than the market value of the home. Because of hardship due to job loss, business failure, illness or other reasons, the homeowner is unable to make their monthly loan payments. To certain qualified sellers, a short sale may be an option to avoid foreclosure whereby the lender agrees to a reduction of the debt owed.
Q: Is a short sale preferable to foreclosure?
A: They can be. Short sales might not hurt a borrower's credit score as much as a foreclosure. There can also be federal incentives that help homeowners facilitate short sales. However, homeowners are strongly advised to have legal and tax professionals review the impact of a short sale.
Q: If the lender agrees to a short sale, is the debt automatically forgiven?
A: Not necessarily. The lender will evaluate each case based on your particular hardship and financial status. That portion of the debt released by the lender is often referred to as a deficiency. The homeowner could still be liable for this amount. It is important to pursue professional legal and tax help to review your short sale agreement.
Q: What are other options besides a short sale?
A: For distressed homeowners a short sale is not the only option. It could be preferable to offer a lender a "deed in-lieu of foreclosure," sell and bring cash to closing, pursue a loan modification or even refinance. Homeowners should contact a real estate professional as well as tax and legal to explore all options.
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