What Does a Real Estate Short Sale Mean?
A short sale occurs when a homeowner sells a home for an amount less than is owed to a lender for a mortgage. The lender must approve the reduced amount before the transaction can be completed.
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Reasons for Short Sales
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Completing a short sale saves a home from going through the foreclosure process and being sold at auction. For the owners, this may reduce the risk of extended damage to their reported credit history.
Buyer's Perspective
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For the buyer of a home in a short sale situation, the transaction is significantly more complicated, and can take many more months to close than a traditional purchase from a seller. With the lender as a third party, urgency is usually lacking, and agreements between the seller and lender must be reached throughout the process.
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Tax Implications
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The tax implications of a short sale for the homeowners may include additional taxes paid on the "cancellation of debt" income gained from the amount the bank assumed.
Mortgage Forgiveness Debt Relief Act
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The 2007 Mortgage Forgiveness Debt Relief Act allows some taxpayers to exclude their forgiven debts from income reported.
Short Sale Disclosure
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A home listed through a real estate agent should always fully disclose a listed home as being a short sale in published remarks and to potential buyers.
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References
- Photo Credit Image by Flickr.com, courtesy of Casey Serin
