When you are trying to avoid foreclosure, one of the more popular options is to sell the home in a short sale. A short sale is a type of transaction that occurs when the bank or other lending institution allows the home owner to sell the property for less than what is owed to the lender.
Short sales have become more popular in recent years due to the high foreclosure rate throughout the country. Lenders have backlogs of foreclosure properties, and in an effort to prevent more from entering their systems, they are allowing more short sales.
How To Qualify For A Short Sale
Before you can sell your home as a short sale, you must receive permission from the lender. Your home and your finances will need to meet a few guidelines prior to gaining acceptance for a short sale deal.
Your home must be current on the mortgage payments at the time you apply for a short sale. However, in recent months, many lenders are allowing short sales on homes that are behind in payments but not in foreclosure. Your home must be worth less than what you owe. Finally, you must be able to prove that your financial situation has changed in such a way that you can no longer afford the home.
You cannot place your home up as a short sale without receiving prior approval from the bank.
What Happens When An Offer Is Made?
When an offer is made on your home during the sort sale process, the potential buyer must submit the offer to the bank and wait for a reply. In many cases, the bank will counter offer, and the negotiations begin. The seller does not have any input into the deal.
When the home is sold, the seller is free and clear of the home and the mortgage. It should be noted, however, that after December 31, 2012, sellers will have tax obligations when selling their home in this manner. The difference between what the home sells for and what the bank is owed will be considered taxable income for the seller.