A short sale is a foreclosure alternative. It involves selling a house for less than the money still owed on the mortgage to a lender. After the financial meltdown in 2008, a number of federal government programs were started to help homeowners avoid foreclosure on their homes by various interest rate adjustments or other methods. Foreclosure has so many drawbacks that any reasonable alternative is better. Most of those federal help programs are now expired or stopped, but there are still alternatives to foreclosure when a house needs to be sold, and it is worth less than the mortgage.

In most cases, the holder of the mortgage, a bank or other financial system, has the right to approve a proposed short sale. In the event there are other lien holders to the property, such as home owner’s associations or condo associations, the primary mortgage holder is allowed to make the decision to let the short sale go through. A decision on the short sale should also address the other lien holders, called junior lien holders, to clarify how that debt will be paid and by whom. It is important for a homeowner to understand clearly the entire number of people who have a financial piece of the house, and who will still demand to be paid after a short sale is approved.

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In most cases, the holder of the mortgage, a bank or other financial system, has the right to approve a proposed short sale. In the event there are other lien holders to the property, such as home owner’s associations or condo associations, the primary mortgage holder is allowed to make the decision to let the short sale go through. A decision on the short sale should also address the other lien holders, called junior lien holders, to clarify how that debt will be paid and by whom. It is important for a homeowner to understand clearly the entire number of people who have a financial piece of the house, and who will still demand to be paid after a short sale is approved.

If the bank decides to let the short sale go through, they have the right to either forgive the outstanding balance, modify the balance, or hold the homeowner responsible for the entire amount left on the mortgage, less the amount of the short sale. As an example, is the remaining mortgage amount is $100,000., and the house needs to be sold, with estimates of selling price of $80,000., that will leave $20,000. owed to the bank by the homeowner.

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If the bank forgives the debt, and many do as part of efforts to keep mortgages from foreclosure, reduce the inventory of bank-owned homes, and due to circumstances beyond the homeowner’s control, the IRS will consider that forgiven debt as taxable income. In the example above, the homeowner will no longer owe the bank $20,000., but will owe the IRS taxes on that $20,000.00 as additional income. The IRS also will not allow homeowners to deduct the loss on a short sale from their personal income tax.

While most homeowners do not want to sell during a financial emergency or during a down market, circumstances often make those decisions for us. It is worth meeting with the bank to explain what is happening, and allow them to factor in the circumstances. If a family member is facing a catastrophic illness, for example, and the family is facing ruinous medical bills, many banks will consider these factors in making decisions about a short sale, especially if the homeowner has a history with the bank and a reasonable credit rating.

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If you’re trying to sell your home but have had trouble finding buyers, you should give Avenue Houston a call. We are open seven days a week and are here to help members of the community get a fair price for their homes – without making them deal with long waits. If you live in the area and need to sell your house fast, don’t hesitate; contact us today!

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Many of the restrictions placed on who could buy a short sale home, how long it had to be kept, and other restrictions expired with the federal government programs for homeowners and foreclosure prevention, such as HAMP and HAFA. The Fannie Mae and Freddie Mac program called Flex Modification does remain in place, and can give homeowners facing foreclosure or other difficult financial situations some choices in how to proceed. With so many programs ending, though, it is worth speaking to a HUD professional home counselor about government programs, rather than depending on personal research alone.

Credit rating is a critical piece of the financial puzzle, and a foreclosure is a hit from which many people can never recover. Just walking away from a financial situation that has snowballed is never the best option, as the credit hit that comes will impact financial health for many years. With the rapid changes in housing and financial markets in the last ten years, new options exist for selling a home rather than allowing foreclosure to proceed. A short sale can protect a family’s financial health.

When selling a home in Houston, you have many options to choose from. You could go through a realtor, sell your home on land contract or even become a landlord. If you are looking to sell quickly, however, and do not want to make repairs to your home, consider contacting us. We will buy your home “as is,” pay cash and close quickly.