Short Sale
If you are faced with the unfortunate prospect of a foreclosure you may wish to consider a short sale in an effort to preserve your financial future. A short sale is essentially the sale of a home which is being foreclosed at a cost which is less than the price of the existing loan.
For example, if your neighbor owes $98,000 on their existing home loan and their home is currently in the process of being foreclosed upon you can offer their lender a lesser amount such as $75,000 for the home. The lender will profit from the short sale by being able to write the property off as successfully sold and they aren't losing as much money as they would if the property were foreclosed and resold on the market at full price.
How Can I Benefit From A Short Sale?
The best way to benefit from a short sale is to wait until the property buyers are several payments behind or at a time when the notice of default has been submitted to the property buyers. This is a time when most home buyers feel pressured to do something in order to preserve their credit and when the banks are most willing to cooperate with potential purchasers who are seriously interested in completing a short sale.
If your home is being foreclosed upon a short sale can help you significantly. If you are successful in selling your home during a short sell deal any second mortgages are dissipated. A short sell will clear any accumulated debt which you may have which is associated with your home and your credit report will be less damaged than if your home went into the total foreclosure actions. You will still have a notice of default on your credit report however that is much better from a financial point of view then a foreclosure or bankruptcy.
What About Debt?
While a short sell will help reduce the debt you have accumulated from your mortgage it won't erase it entirely. You will either be responsible for the debt if the lender should choose to sue you or you will be sent a form which declares the remaining debt as a source of income. You will have to properly file this information on your federal and state tax returns at the end of the year and of course pay any accumulated tax debt which may be associated with it.
If the judge decides that you should be held responsible for the remaining debt you will be sent a foreclosure deficiency judgment. This means that you will be required to pay the difference between the amount of debt which you own on your home and the price which was paid in the short sale.
In the example above if the home buyer were sent a foreclosure deficiency judgment then his financial responsible for the remaining $23,000 of the debt would need to be repaid. If you have filed for bankruptcy actions you may only be required to pay a portion of the cost which remains.