For homeowners who are struggling to pay their mortgage and owe more on their mortgage than their home is worth, a real estate short sale can be an option to consider. A short sale is a real estate transaction in which the homeowner sells the property for less than what is owed on the mortgage, with the lender agreeing to accept less than the full amount owed to them in order to avoid the costs and lengthy process of foreclosure. While a short sale can have advantages, there are also potential disadvantages to consider. In this article, we’ll explore the pros and cons of a short sale for homeowners.
PROS OF A REAL ESTATE SHORT SALE
Avoid foreclosure
One of the biggest advantages of a real estate short sale is that it can help homeowners avoid foreclosure. Foreclosure can have serious consequences, such as damage to your credit score and the loss of your home. A short sale allows homeowners to sell their property and move on without the negative impact of foreclosure.
Reduce debt
In a short sale, the lender agrees to accept less than the full amount owed on the mortgage. This means that the homeowner’s debt will be reduced, and they will not be responsible for the difference between the sale price and the outstanding balance on the mortgage. This can help homeowners to move on with their lives without the burden of an unaffordable mortgage.
Move on with your life
A short sale allows homeowners to move on with their lives without the burden of an unaffordable mortgage. By selling the property and reducing their debt, homeowners can start fresh and make a new start.
Avoid deficiency judgment
In some states, lenders can seek a deficiency judgment against homeowners after a foreclosure. This means that the homeowner is responsible for paying the difference between the sale price and the outstanding balance on the mortgage. In a real estate short sale, the lender agrees to accept less than the full amount owed on the mortgage, so there is no deficiency judgment.
May be eligible for a new mortgage sooner
A short sale may allow homeowners to be eligible for a new mortgage sooner than a foreclosure. While a foreclosure can stay on your credit report for up to seven years, a short sale may only stay on your credit report for two to four years. This means that homeowners may be able to qualify for a new mortgage sooner.
CONS OF A REAL STATE SHORT SALE
Lengthy process
The short sale process can be lengthy and complicated. It can take several months to complete, and the homeowner will need to provide extensive financial documentation to the lender. This can be a stressful and time-consuming process.
Damage to credit score
While a real estate short sale is better for your credit score than a foreclosure, it can still have a negative impact on your credit score. Your credit score may be lowered by the late payments leading up to the short sale and the fact that the mortgage was not fully paid off. This could make it harder to obtain credit in the future.
Tax implications
In some cases, the amount of debt forgiven in a short sale may be considered taxable income by the IRS. This means that the homeowner may have to pay taxes on the difference between the sale price and the outstanding balance on the mortgage. It’s important to consult with a tax advisor to understand the potential tax implications of a short sale.
Emotional impact
Selling your home in a short sale can be emotionally difficult. It can be hard to let go of a property that you have invested time and money into. Homeowners may also feel a sense of failure or embarrassment about their financial situation.
Potential for a deficiency
While a deficiency judgment is not common in a short sale, it is still possible. If the lender does not agree to forgive the entire outstanding balance on the mortgage, the homeowner may still be responsible for paying the difference.
Conclusion
A real estate short sale can be a good option for homeowners who are struggling to pay their mortgage and owe more on their mortgage than their home is worth. However, it’s important to carefully consider the pros and cons and explore all your options before pursuing a short sale. If you are considering a short sale, it’s a good idea to consult with a real estate agent and a financial advisor to help you make the best decision for your situation.
While a short sale can help homeowners avoid foreclosure and reduce their debt, it can also have a negative impact on their credit score and emotional well-being. Additionally, there may be potential tax implications and the possibility of a deficiency judgment. It’s important to weigh the pros and cons carefully and consider all the potential consequences before making a decision.
Ultimately, the decision to pursue a real estate short sale will depend on the individual circumstances of each homeowner. If you are struggling to pay your mortgage and owe more on your mortgage than your home is worth, a short sale may be a good option to consider. However, it’s important to do your research, seek expert advice, and carefully consider all the potential pros and cons before making a decision.
