When housing prices in many areas were booming a couple of years ago, there wasn't much national focus on short sales. However with the current subprime debacle and increasing mortgage delinquencies, many people are wondering when the short sale process is a way to avoid foreclosure.

Basically, the definition of the short sale process happens when the lender of a property allows the property to be sold for under the total amount due on the mortgage loan.

The most obvious help to the short sale process is it allows the seller to avoid the loan report damage associated with a foreclosure. A foreclosure can stay in your credit report for approximately Ten years and may take a psychological and financial toll you and your family.

But the pitfalls of the short sale process should be thought about too. The I.R.S. may consider any debt forgiveness as taxable income, thus resulting in a tax liability. Additionally, lenders can often pursue a borrower for that deficiency balance (the difference between your balance due and the amount paid).

In some cases you may be in a position to avoid taxation if you're able to prove you're insolvent. But when insolvency is not successful, and you are faced with a tax liability resulting from the deficiency amount, it might make more financial sense for you to let the lender foreclose.

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The Short Sale Process

The short sale process can differ, however it will generally act as follows:

1) The lending company is contacted to discuss the potential of a brief sale and to determine the lender's process for completing the sale.

2) The vendor issues instructions authorizing the discharge of private details about the borrowed funds and also the property to the buyer or escrow agency.

3) The lender will review funds statement, which will indicate the proposed selling price, remaining loan balances and itemize all expenses, including property commissions and other fees and expenses related to the closing.

4) The seller will complete a "hardship letter," that will detail and explain all financial hardships. Lenders will often wish to validate the seller's finances by taking a look at bank statements, investment accounts, along with examining paystubs along with other financial records.

Roseville Short Sale

5) The lender will then look to the broker to provide a price opinion by examining the health of the house and the market value of comparable properties.

6) The lending company will then want to scrutinize the purchase agreement to find out if all amounts are reasonable and the real estate commission is acceptable.

Because of the documentation required, the short sale process could be lengthy. But when done properly, it may work nicely for those parties involved. The lending company avoids the uncertainty from the foreclosure process, the seller avoids foreclosures with their credit history (together with potential bankruptcy), and also the buyer hopefully got a great deal on a property.

Thinking about the complexity of the short sale process, you must be educated. If you're planning on a brief sale, make sure that you discuss your circumstances having a competent lawyer and accountant. The more educated you are on the procedure, the simpler the transaction is going to be, and the better the sense you will make on the lender.