· “SHORT SALES", Don't Let Time Run Out On You!
Throughout the history of real estate in the United States there have been periods during which the market has been extremely slow. During such times the fair market value of a house may be less than the loans owed against it. This is known as being "upside-down" in the property.
Some owners think the only way to cut their losses is to walk away from the house by giving the lender a "Deed in Lieu of Foreclosure". This can have adverse tax consequences leading to a situation known as "Phantom Income" in which you owe tax on the lender's forgiveness of your debts. It may also adversely affect your credit rating. In addition, your lender does not have to accept the Deed in Lieu. Please consult your own tax advisor and/or attorney for the exact effect on your particular situation.
The first person to contact if you find yourself upside-down in your house is a knowledgeable real estate professional who can provide you with guidance, and work with your lender. He or she can discuss the possibility of a "Short Sale" and other options. A Short Sale is where the lender takes less than they are owed thus preserving your credit rating. Please consult your own tax advisor and/or attorney for the exact effect on your particular situation.
Why would a lender take less than they are owed? There are many legitimate reasons why a lender would cooperate with a Short Sale.
1. Banks are not in the business of owning real estate.
2. A Short Sale could cost less than repossessing a property.
3. Repairs could be needed after repossession.
4. Loss of mortgage payments could compound loss.
There are other options for upside-down properties including lease-options and loan assumptions. A buyer might be willing to pay more than a property is worth if they can purchase with little or no money down. Also, a lender may prefer allowing your loan be assumed by a qualified buyer rather than having to go through a long an costly repossession process. Talk to your agent about your options. Realtors® can not give legal advise or tax advise, so be sure you talk over your situation with a qualified professional, in addition to talking to a professional Realtor®.