Is a short sale right for you?
Pros
Avoid Foreclosure
A short sale stops the foreclosure process and allows you to resolve the situation through a standard real estate transaction. It helps prevent the additional legal and credit consequences that occur once a foreclosure is completed.
Choose Your Path
You maintain involvement in the sale and approval process rather than having the lender take control through foreclosure. This allows you to plan your timeline and transition instead of reacting to a forced sale.
Best Credit Outcome
A short sale is reported differently than a foreclosure and typically allows for a faster credit recovery period. Most homeowners can qualify for new financing sooner compared to other default resolutions.
Reduce Deficiencies
Most lenders agree to forgive or settle any remaining mortgage balance as part of the short sale approval. This reduces or eliminates the risk of future collection activity or debt liability.
Relocation Incentives
Certain loan programs like FHA &VA provide relocation assistance. These typically range from $1500-3000, to offset moving costs and may only be available if you still live there and don’t have any additional liens or mortgages.
Bounce Back
Completing a short sale shows you’ve taken responsible action to resolve the mortgage default. Many homeowners are able to purchase again within a few years, often sooner than after foreclosure or bankruptcy.
Cons
Credit Score
Your credit score will drop after a short sale, though not as severely as after a foreclosure. Damage occurs once you have a 60, 90 or 120+ day late mortgage payment and it will affect your ability to get new credit or loans for a period of time.
Taxable Event
Any forgiven mortgage debt may be reported as taxable income via 1099-C under IRS rules. This potential tax issue can also occur with foreclosure or deed-in-lieu transactions. (Read More)
Deficiency Judgments
In certain cases, lenders can legally pursue collections and repayment of the unpaid balance. Whether this happens depends on state law, loan type, your financial situation and the terms of the short sale approval.
Sale = Moving
Completing a short sale means you’ll eventually have to move out once it closes. Even though it’s a fresh start financially, the emotional side of leaving your home can be difficult.
Long Timeframe
The short sale approval process can sometimes take several months as lenders review your hardship, property value, and offer terms. Patience is often required, especially when multiple liens or mortgage investors are involved.
Financial Documentation
You’ll need to provide detailed financial records such as bank statements, pay stubs and hardship letters. This paperwork shows the lender that you truly can’t afford to keep the property.
Short sales work because it often is the best outcome for everyone involved: your lenders agree to accept less because they estimate that they’ll recover more than if they go all the way through foreclosure and the property is resold as a bank owned. As a result, the homeowner pays back as much as possible therefore minimizing any potential deficiency judgments or tax consequences. Buyers are motivated as they potentially receive a good deal and real estate brokers can assist their clients fulfil their goals and earn a commission. I needs to be a win-win-win-win situation or it typically doesn’t work.