FORECLOSURE (Part III): Short Sales

In the last two articles we discussed different ways of avoiding foreclosure. I know for some of you none of these methods will work because there is no equity in the house or probably you have one of those famous option-arms with a starting rate of 1.00%. If you have any suggestions as to what a homeowner facing foreclosure can do to save their home, their credit rating, or both, please let us know by filling out the comments section.

In this article we will discuss the process of a short sale. First of all what is a short sale? Bill Bischoff defines it as "A home sale where the mortgage debt exceeds the net sale price (after subtracting out commissions and other transaction costs)".

For example, let's say that you bought a property for $615,000 in October of 2006 and would like to sell the property a year later, but there has been little price appreciation and other homes in your neighborhood have been listed between $530,000 and $585,000. What do you do? Basically you would list your home at a competitive price, let's say $565,000, and wait for an offer.

Once an offer has been submitted and you have accepted it the realtor would have to submit the offer to the lender for final approval because you are paying less than what is owed to the lender (in our example $50,000 less). This process can take a while so make sure the buyer is made aware of this from the very beginning!

Even though you will not be walking away with any money from the sale of your home it is worth selling it yourself because it looks better than having a foreclosure on your credit report.

Currently the tax law states that you would have to pay taxes to the IRS on the amount you were short on, in the above example this would amount to $50,000 and some banks might require that you pay off the amount owed to them.