Gettin' The Short End (Vol. II)

-       Last time we looked at the good things that can come out of the short sale of your home.  Of course, for every action there is an equal and opposite reaction, so we will now look at the not so pleasant results.  They are:

      While a short sale is less damaging to your credit than a foreclosure, the operative word is “less”.  There will still be some damage to your credit rating, and the chances of getting another mortgage right away will be slim at best.

-          You may still be required to pay taxes on the remaining debt owed.  The IRS treats the forgiven debt as taxable income.

 

-          The lender does not have to agree to a short sale.  They may very well insist on payment in full.

-          You will have to provide proof that you are no longer in a position to make your mortgage payment.  If you have indulged in foolish actions such as simply living beyond your means, it is highly unlikely that the lender will agree to a short sale.  Legitimate hardships, such as divorce, extended illness, or job loss are usually accepted as valid.

-          Despite its name, a short sale is anything but short.  It is a long and involved process requiring all the right paperwork, documentation, as well as speed of the lender in expediting the process.  Lenders are not known for being enthusiastic participants in short sales.

-          Once the lender approves the short sale, it is still dependent on a good offer from a good buyer (i.e. a buyer that can actually get approved).  Real estate agents may get smaller commissions on short sales, reducing their enthusiasm for your situation.

-          The bank may still pursue a repayment of the forgiven debt.  Never assume.

Basically, while short sales may seem like a way out from foreclosure, it is important to remember that there are still negative effects to the process, no guarantee that the lender will agree to it, a considerable hit to your credit score, etc.  However it is a viable alternative to a foreclosure.

Before making any decision on a short sale, contact a real estate professional with a successful record in short term sales.