A short sale offers the opportunity to sell your home and to eliminate, or reduce, your existing mortgage obligation.
The sale is similar to a traditional home sale. You will hire a real estate agent. The agent will provide an up-to-date opinion of value. Based upon this value you will put your home up for sale. However, you need approval from your lender before you can sell your home as a short sale.
The benefits of a short sale include:
- Your mortgage debt is either reduced or eliminated.
- You may avoid the negative impact of a foreclosure.
- You may be eligible for relocation assistance up to $3000.
- Your credit is rebuilt quicker as compared to foreclosure. This may allow you to receive another mortgage in as little as 2 years as compared to 7 years for a foreclosure.
The drawbacks of a short sale include:
- The bank or mortgage lender has right to seek a deficiency judgement for the deficiency in the mortgage payoff. However you may be able to negotiate such obligation lower or to eliminate it completely.
- You may owe income taxes on the deficiency amount. However, the Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief.
In any case, a short sale is more beneficial to you than a foreclosure.