A short sale is a transaction in which the homeowner sells the home for less than the balance of the mortgage. The main purpose behind the sale is discharge of the remaining balance between sale value and mortgage value. These sales require approval by the lender but are, in my opinion, worth the effort.
Why shouldn’t you just walk away and allow foreclosure? First, foreclosure leaves a collectible debt. The deficiency – the difference between mortgage and sale value – is a collectible debt that can follow you for years. One of the benefits of a short sale is that the lender will waive the deficiency, discharging it through a 1099-C and stipulating they will not pursue the same.
The second major reason is that a short sale – properly negotiated – can impact your credit less than a foreclosure. The total impact to my credit in our short sale was approximately 80 points.
Finally, you can qualify for a mortgage sooner with a short sale than with a foreclosure. For us, it was 23 months from close of short sale to new mortgage.
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