A short sale is when a sale is less than a balance owed on a secured loan when dealing with real estate. Typically, mortgage lender agrees to a reduction of a loan balance because financial stress of the home owner. A banks mitigation, or workout department deals with the negotiation.
The main reason for a short sale is to prevent foreclosure but ultimately the fate is decided by the bank if they think it’s the most economic way to pay for the money owed. Along with foreclosures are carrying costs that banks want to avoid. The bank will determine the probable buying price and/or make an appraisal. The borrowower in trouble will be able to avoid foreclosure on their credit history and it will help shore up some of their debt. Essentially a troubled homeowner is selling off less than what is owed.
To qualify for a short loan you must meet a number of varying criteria by the lender. Banks may suggest opting for a loan modification instead and refinancing a loan if possible would always come first.
These are all ways to reduce the credit card black eye that comes with a foreclosure but these can all affect your credit reports to varying degrees.
The Mortgage Forgiveness Debt Relief Act was approved by Congress and has been extending until 2012. This offers relief to homeowners who would traditonally owe taxes on mortgage debt when facing foreclosure.
