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Writer's pictureDillon Landfried

What is a Short Sale?


An increase in foreclosure rates inevitably leads to an increase in short sales, which is when a property is sold for less than the remaining mortgage balance, with the proceeds going to the lender in exchange for forgiveness of the remaining debt. Short sales are a way to avoid foreclosure, as lenders generally prefer to recoup some of their costs rather than going through the foreclosure process, which often results in a loss for them.


However, obtaining permission for a short sale is not easy. Documentation of genuine financial hardship is typically required, and the decision is not solely in the hands of the lender. Mortgage insurance companies and investors backing the mortgage may also have a say in accepting a short sale.


The transaction process for a short sale can be complicated for both buyers and sellers. Many short sales fail due to additional demands from the lender, such as reducing the broker's commission or requiring the seller to repay the shortfall. If you're selling a property through a short sale, it's advisable to have an experienced professional negotiate with the lender for a favorable outcome.


It's important to note that if the lender accepts a short sale and forgives part of the debt, it is considered taxable income and must be declared to the IRS.

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