 Search the Knowledgebase |
 Browse by Category |
|
|
|
|
|
| What’s a short sale? |
|
Article Details
Last Updated
13th of April, 2010
|
| User Opinions (4 votes) |
75%
25%
|
|
Thank you for rating this answer.
|
A short sale occurs when your mortgage lender agrees to accept less than the full principle loan amount but considers the loan paid in full. Example: Let’s say you owe $100,000 on your mortgage. If someone offered you $85,000 and your mortgage lender accepted the offer, the lender would be allowing you to short sell the home. The lender would forgive the difference of $15,000, called a deficiency balance. In the past, that $15,000 was taxable, but there is legislation in place now that excludes the deficiency balance on a short sale as taxable income.
Short sales are much more common nowadays because of the current mortgage environment. If your lender is willing to work with you, a short sale can help you get out from underneath a mortgage loan that is no longer appropriate for your situation.
The bad news about short sales
- Your credit scores will suffer (and could suffer greatly) because your mortgage lender will likely report the loan to the credit reporting agencies.
- There are two ways that the loan can be reported on your credit reports. The first is “Settlement accepted on this account.” The second is “Settled for less than the full loan amount.” The exact verbiage will vary by bureau, but they all mean the same thing: The loan has a $0 balance but was not paid in full according to the terms of the original loan agreement. Scoring models will consider this a serious negative item.
- A short sale is just as bad for your scores as a foreclosure.
Read about why a short sale is better than foreclosure, even though they are both bad for your credit scores.
Also, if you’re having trouble paying your mortgage because you are in debt, you can talk to a debt expert and get free debt consolidation. Another good option is Mortgage Loan Modification.
|
The article has been updated successfully.
