After getting three months behind on your mortgage payments, lenders can sure get persistent. In these situations, people tend to think that selling their home is the best, if not the only, option. They make a few calls and lock up a realtor with a kind face who then tells them, with a kind smile no doubt, that their house won’t sell for enough to pay off the loan balance, the fees and the realtor’s commission. Many decide to go for the sale anyways, only to realize later that foreclosure is inevitable.What people don’t realize is that lenders have an overflow of repossessed homes. They are willing to settle the debts through what is called a “short sale”. A short sale is for the homeowner who is completely behind on their loan payments and is on the road to losing their house. Most likely, their house will sell for less than what is owed.

Lenders are supportive of short sales because it benefits them much more than foreclosure. With a foreclosure, the lender loses out as they have to repossess the house and carry the burden of selling it in order to mitigate the losses. If the house doesn’t sell for a couple months, it’s a loss on the books. With a short sale, the deal is done and the lender receives money right away. The problem is essentially dealt with.

When short sales are negotiated successfully, the lender agrees to consider the loan paid in full, accepting the lesser amount. As the short sale benefits the lender, the homeowner gets nothing out of the sale of the home. What the homeowner does receive is a credit report free of foreclosure marks which will lead to a decrease in their credit score. Be wary of unfair short sales though. One that is done in haste or disinterest could result in the homeowner owing the difference between what was received and what was owed.

In order to qualify for a short sale, the homeowner must be able to prove both their financial burden and inexorable economic situation. With months of delinquency, you should easily be able to demonstrate the extent of your insolvency. Clearly showing to the lender that you can’t make payments, which should be obvious, is of the utmost importance. Without it, the lender has no reason to cooperate with you and arrange for a short sale.

In the process, you need both a signed and accepted offer on the house. While it seems difficult in today’s market, you should be able to find a buyer who is willing to pay for a house that is going below its market value. The offer must be made as the lender will not consider the short sale without it.

Should I get a Lawyer?

The short sale process is complicated and difficult to handle alone. Do not resort to someone who looked up short sales on the web and believes they know the “ins and outs” of it all; rather, find someone who is a Jedi Master when it comes to short sales. It involves various negotiations concerning loan loss mitigation personnel and an extensive amount of paper work.

You don’t want to blow your shot at a short sale by providing the lenders with too much information or even worse, the wrong information. Lenders will ask for information pertaining to your financial history as you attempt to prove your economic crisis. You absolutely cannot lie to the lenders while also giving them what they want. In proving your situation, you must be able to present bank statements and tax returns to support your claims.

The key in this whole process is to prove that you are presently unable to pay your loan but at the time of its application, you were financially sound. If you cannot prove both, it could be considered mortgage fraud.

Any tax implications with short sales?

The bottom line is that in the short sale, the lender has money that was not covered in the sale. If you write off the amount, the lender will seek a judgment against you or report the amount as income to the IRS in a 1099 form. Reporting the amount to the IRS will usually increase your taxes. The judgment will appear on your credit report for ten years after the fact.

Conclusion

A short sale is not a perfect solution to an extremely difficult situation. If you’re at the point of foreclosure, do not hesitate to contact to your lender and inquire about short sales. Be sure to put your request in writing. All things considered, a short sale will most likely leave you and your record in a better state than foreclosure.

Learn more about how to stop foreclosure at GuideToStopForeclosure.com

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That's when taking out a short term loan can come in handy.