Short Sale Considerations

If you believe that a short sale is the best option, you will need to know the following upfront:

  1. Short Sale approval by the investor(s) is not guaranteed even though the borrower/ seller and buyer agree to the terms in a purchase contract.
  2. Short sales require borrowers/ sellers to complete and submit a lot of paperwork.
  3. Investors require borrowers/ sellers to have a valid financial hardship in order to approve a short sale.
  4. Short sales may take a longer time to close, compared to non-short sale transactions.
  5.  There is no guarantee that foreclosure will be postponed while attempting to complete the short sale.
  6. If there are junior lien holders (a second mortgage, home equity line of credit, etc.) and if they do not agree to the short sale, the short sale will fail even if the first lien holder approves it.
  7. If the borrower/ seller has assets such as cash, savings, money market funds, marketable stocks or bonds (excluding retirement accounts), the servicer may ask the borrower to make a cash contribution toward the short sale.
  8. If the short sale closes and the borrower/ seller's loan was a recourse loan, the borrower/ seller may be responsible for repaying the deficiency.
  9. If the debt is forgiven, there may be tax ramifications (the amount that is short may be considered taxable income)  if Congress does not extend the mortgage debt forgiveness bill.
  10. If the short sale closes, the borrower's/ seller's credit score will be impacted.
  11. If the short sale closes, the borrower/ seller will need to wait before they can qualify for a mortgage to buy again. They could buy with cash but getting financing will be a problem.

How will this impact my credit score/ buying power? Check here:

Dylan Wolf
Bellevue Commons
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