Before You Sell Your House at a Loss – Conducting a Short Sale


If you’re a homeowner who has to sell your house at a loss (a short sale), you need to protect yourself with this information! These tips about short sales are from Ethan Ewing, president of Bills.com.

“Many home owners are putting off a sale until prices recover. But some owners must sell at a loss,” says Ewing. “Selling a home for less than the debt on the loan — called a ‘short sale’ — is not desirable, but sometimes it’s necessary for those who face major financial hardship.”

If you’re facing a short sale and want more info, click The Realtor and Home Owner’s Guide to Short Sales: Step by Step. And, read on for Ewing’s tips on selling your house at a loss…





Before You Sell Your House at a Loss – Conducting a Short Sale

A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan.
 
1. Know what qualifies for a short sale. Several factors make a home a candidate for a short sale. Typically these are a general drop in home values (such as has happened in many markets), a mortgage that is near default status, or a home owner who is unable to pay due to hard times.

2. Find the right real estate agent. The short sale process is specialized. Lenders have stringent requirements and might ask real estate agents to take a lower-than-standard commission. Look for real estate agents with experience.

3. Talk to the lender of your home mortgage loan. If a home is worth less than the mortgage amount, sellers will need special permission from the lender to sell the home at a loss for its current value. If the sale stems from financial hardship, home owners will need to prepare a hardship letter explaining why they need to sell. “Remember that some lenders will be open to the possibility of a short sale to avoid the alternative of foreclosure,” Ewing says. “If you are a good borrower hit by bad times, make sure to communicate this effectively to the lender.”

4. Understand the tax consequences of a short sale. In some cases, a lender forgives the difference between what is owed and the selling price. Lenders can classify that forgiven debt as income to the seller, which means that the seller would be required to pay income tax on the amount. However, the Mortgage Forgiveness Debt Relief Act of 2007 allows some home owners to exclude that income. This exclusion primarily applies to those whose home was foreclosed on or who had debt forgiven as part of a loan restructuring. Individuals who are truly insolvent (total liabilities are greater than total assets) also can file IRS Form 982 declaring the insolvency to have the tax waived.

5. Know that a short sale will impact your credit score. A short sale is recorded on a credit report as a pre-foreclosure proceeding. As such, it will damage credit scores. Still, it may be the best alternative for some homeowners.

6. Consider alternatives. If paying the mortgage is the problem – and there is no desire to sell — some home owners have options available. Some lenders will consider a loan modification, which seeks a permanent change to the loan, such as lowering the payment and extending the loan’s term, or rolling delinquencies into future payments. Government programs such as Hope for Homeowners also fall into this category. Another option is a “deed in lieu” of foreclosure, which essentially allows the borrower to return the title or deed of the property – giving the home back – to the mortgage holder to avoid foreclosure. The borrower forfeits equity in the property, but avoids a foreclosure on his or her credit record.

For ways to avoid selling your house at a loss, read 7 Tips for Mortgage Loans and Refinancing.







Laurie's "She Blossoms" Books

growing forward book laurie pawlik she blossoms
Growing Forward When You Can't Go Back offers hope, encouragement, and strength for women walking through loss. My Blossom Tips are fresh and practical - they stem from my own experiences with a schizophrenic mother, foster homes, a devastating family estrangement, and infertility.








letting go book laurie pawlik she blossoms

How to Let Go of Someone You Love: Powerful Secrets (and Practical Tips!) for Healing Your Heart is filled with comforting and healthy breakup advice. The Blossom Tips will help you loosen unhealthy attachments to the past, seal your heart with peace, and move forward with joy.









miss him book laurie pawlik she blossoms
When You Miss Him Like Crazy: 25 Lessons to Move You From Broken to Blossoming After a Breakup will help you refocus your life, re-create yourself, and start living fully again! Your spirit will rise and you'll blossom into who you were created to be.









Sign up for my free weekly "She Blossoms" newsletter

One Blossom Tip a week. Short and sweet. You'll love it.

* indicates required



Bills.com is a free one-stop portal where consumers can educate themselves about complex personal finance issues, including credit cards, debt relief assistance, insurance, mortgages, and other loans.


Leave a comment

Your email address will not be published. Required fields are marked *

One thought on “Before You Sell Your House at a Loss – Conducting a Short Sale

  • DebT

    I think that I may need to try to do a short sale. My value has dropped by 50% and I just can’t afford the payments anymore. I think I should qualify to avoid the taxes on the insolvency issue.