3 Things You Need to Know Before a Short Sale


    The last five years have been financially tough on many families.  Although our economy is headed in the right direction, many people are still faced with falling behind on their mortgages.  This at many times is of no fault of their own, as potentially losing a house to foreclosure or bankruptcy can crush a person to their core.  But, if you are falling behind on your loan payments and are getting close to defaulting, there are other options to consider besides bankruptcy or foreclosure. One of the key reasons people feel so buried by their home loans are due to the amount of value their home decreased in last 5 years.  Many people have become upside down on their loans, owing more on the principal of the loan, than their home is actually worth.  

    If you are upside down on your home loan and facing possible foreclosure or considering filing bankruptcy, then a short sale may be an option to consider first. A short sale is when the lender allows the sale of a home for less than what the home is valued at.  But before you decide you want to try and short sale your home, there are a few things to consider first.

    How will a short sale affect your credit?

    How it affects your credit can vary, and is primarily circumstantial. The true impact won’t be felt until you check your credit six months after. But, there are instances when a short sale beats the alternative. Are you already behind on your payments and being threatened to be forclosed on by the bank?  If that is the case then a short sale will definitely be better for your credit in the future. It is much easier to repair damages done to your credit from a short sale than a bankruptcy, allowing you to start repairing your credit much sooner. 

    How wil a short sale affect your taxes?

    Exactly what the affects on your taxes will be, depends on many circumstances.  For that matter we suggest you contact a certified Short Sale Broker and or a CPA.  If you do decide that a short sale is the right avenue to take and are granted a short sale through your lender, the bank will send you a 1099 form to adress the forgiven amount of the loan.  The amount that is forgiven is consider income, however, there have been some recent changes to the IRS tax code that  allow that amount to be forgiven. Make sure to check with your tax professional before you decide to move forward with a short sale.

    What about the amount you owe the bank?

    After the short sale is complete you will need to find out what will happen to the deficiency amount.  Because the circumstances vary from case to case in a short sale, the bank will ask for a promissory note or cash at closing.  But, because you won’t know how the bank will respond to your request until you actually start the short sale process and make a proposal to the bank.  When you do recieve approval of the short sale from the bank, you will need to look for specific language in the terms of agreement that say you owe $0 on the promissory note and $0 cash at closing, as well as well terms that will not allow the bank to seek any further actions against you in the future.

    The threat of possibly losing your home to foreclosure can be a very stressful and scary process.  But, fortunately there are other options you can take if you’ve already tried to get refinanced or the bank has refused to work with you.  At NW Home Experts we have certified Short Sale Brokers that understand how hard it is to give up your home, and thats why we are here to help answer any questions or concerns you may have.  If you feel that a short sale is right for you would like to view a list of short sale properties in your area, give us a call at 360-789-3890 or email: joe@nwhomeexperts.com