When housing prices in lots of parts of the country were booming a few years ago, there wasn't much national attention given to short sales. But with the current subprime debacle and increasing mortgage delinquencies, so many people are wondering if the short sale process is a way of preventing foreclosure.

Basically, the definition of the short sale process is when the lender of a property allows the home to be removed for less than the amount due around the mortgage loan.

The obvious help to the short sale process is that it allows the vendor to avoid the credit report damage associated with a foreclosure. A foreclosure can remain on your credit report for approximately 10 years and may take a psychological and financial toll you and your loved ones.

But the pitfalls of the short sale process should be thought about too. The I.R.S. may consider any debt forgiveness as taxable income, thus producing a tax liability. In addition, lenders can frequently pursue a borrower for the deficiency balance (the main difference between the amount owed and also the amount paid).

In some instances you might be able to avoid taxation if you can prove you are insolvent. But if insolvency is unsuccessful, and you are confronted with a tax liability resulting from the deficiency amount, it might make more financial sense for you to allow the lender foreclose.

Roseville Short Sale

The Short Sale Process

The short sale process can vary, but it will generally act as follows:

1) The lender is contacted to go over the potential of a short sale and to determine the lender's process for completing the sale.

2) The vendor issues a letter authorizing the release of personal details about the loan and the property to the buyer or escrow agency.

3) The lending company will review a settlement statement, that will indicate the proposed selling price, remaining loan balances and itemize all expenses, including real estate commissions along with other fees and expenses associated with the closing.

4) The seller will complete a "hardship letter," that will detail and explain all financial difficulties. Lenders will usually want to validate the seller's finances by taking a look at bank statements, investment accounts, together with examining paystubs and other financial records.

Roseville Short Sale Specialist

5) The lending company will look to the broker to provide a price opinion by examining the condition of the home and also the market value of comparable properties.

6) The lender will then wish to scrutinize the purchase agreement to determine if all amounts are reasonable and also the real estate commission is acceptable.

Due to the documentation required, the short sale process can be lengthy. But when done properly, it may work nicely for all parties involved. The lender avoids the uncertainty of the foreclosure process, the vendor avoids a foreclosure on his or her credit history (together with potential bankruptcy), and also the buyer hopefully got a good deal on the property.

Considering the complexity of the short sale process, you have to be educated. If you are considering a brief sale, ensure that you discuss your situation having a competent lawyer and accountant. The greater educated you are on the process, the simpler the transaction will be, and the better the sense you will make on the lender.