Alot of people ask the question, "Can I do a short sale on my house?" Well, the answer is not as easy as it may seem. Basically, a short sale is when a bank will take less than you owe on the house in order for you to sell it and not have to lose it to foreclosure. It's a sort of "settlement" the bank takes so it doesn't have to foreclose. Not everyone who's home is worth less than their mortgages will qualify for a short sale however. The bank will take a look at the person's total net worth, including assets and liabilities to see if the person "needs" the short sale. The seller will have to fill out a "Needs Package" for most banks which is sort of an application to see if they qualify for the short sale. Generally, in our experience, the qualified "short sale" seller is usually in a distressed situation and is already in jeopardy of losing their home to foreclosure. The short sale process is a way to avoid the foreclosure but there are a few things to consider.
1) In some cases, the bank will still try to collect the difference on the short sale. Always, make sure if you go through this process, the bank agrees to "settle" the debt.
2) There are tax consequences in many situations on a short sale where you will be taxed on the difference between the sales price and what you owe. You would need to seek an accountant's advice to find out what that taxable amount would be.
3) The short sale process is not for the impatient seller. This is a lengthy process, sometimes taking 4-6 months but many times is worth it in the long run to avoid foreclosure.
4) Yes, a short sale can negatively impact your credit. However, in many cases, the seller is already delinquent on their mortgage and possibly other debts as well and this will help them get out of their home and be able to get their finances back on track.
Some people don't have the time for a short sale if they are already 30 days or less from their foreclosure sale. The short sale process is designed for people who cannot afford their homes but would like another solution other than a foreclosure.
