A short sale occurs when the amount owed on a property is more than it is worth and the homeowner is not able to pay off the mortgage(s) when the property is sold. The homeowner negotiates with the bank(s) holding the mortgage(s) to accept less than the full balance of the loan(s) at closing, selling 'short' of the total value of the mortgage(s).
Many people have been saying they expect 2012 to be the year of the short sale, largely because the Mortgage Forgiveness Debt Relief Act of 2007 is set to come to an end at the end of this year. Prior to this act, the amount of the debt forgiven in a short sale was generally taxable. When this act came to be this tax liability was generally alleviated for those selling their primary residence. As it stands right now, this applies to debt forgiven 2007-2012. If not extended, it could have significant tax implications for sellers participating in a short sale after this year.
For sellers to qualify for a short sale, all of three of these circumstances must occur…
- Financial hardship – a situation causing trouble affording the mortgage
- Monthly income shortfall – financials demonstrating the mortgage is unaffordable
- Insolvency – insufficient liquid assets to pay down the mortgage
While short sales reflect short funds, they do not usually reflect a short time frame. It typically takes 60-90 days for short sale approval from the bank holding the mortgage on the property… often longer when more than one mortgage is involved.
Sharlene Hensrud, RE/MAX Results – Email – HomesMSP.com
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