In today’s economic mess, many homeowners are learning that their homes are worth less than what they’re paying on monthly mortgage payments. Some people are continuing to pay on the mortgage, hoping for the housing market to turn. Some others have decided to let their new houses be foreclosed upon, deciding to take that hit and store up money to move to a place they can better afford. But there’s a third option that some people are taking that they feel works better for them, but it may not be their best option.
That option is known as short selling. Short selling is the process of selling your home for less than it’s worth. In this case, many homeowners in California and Florida are selling their homes and getting out from under terrible mortgage deals that have ended up crushing them. Lenders are happy because they don’t have to try to find someone to sell the home to, and at least they’re getting something coming in. Sellers are happy because it’s not recorded as a foreclosure, and they’re out from under debt that was giving them nightmares.
So everyone is happy, right? Well, not so fast. It seems that short selling might have a more detrimental impact on the seller than they thought it would. As stated in SmartMoney Magazine, there are three major negatives that can, and will, follow you should you decide on this option. They are:
1) your credit score takes a hit as if you were foreclosed upon;
2) the lender may still come after you for the difference between what you sold the house for and what it’s worth at the time of the short sale
3) if you needed time to build money up, a foreclosure offers you that opportunity, whereas with a short sale, in some states, you don’t have any protection after a short sale
So, even though lenders will be getting a small bonus back from the federal government for any short sale transactions, it may not be enough to keep them off your backs, and your credit score is going to suffer anyway. This is one case where doing the right thing might not be the right thing for you and your family.
It’s something else that homeowners in trouble have to deal with as they try to take care of their families in a tough economy.
See more:
http://homebuying.about.com/od/4closureshortsales/a/shortsalebasics.htm
http://real-estate.lawyers.com/residential-real-estate/Selling-Your-Home-For-Less-Than-You-Owe.html
http://www.debtkid.com/short-sale-agents
http://www.ehow.com/how_8132_short-sale.html
I am a Managing Partner, Internet Marketer and Blogger at New Homes Section. Follow me on 
It’s good to know, I really didn’t know the difference…
davidcs last blog post..Home Insurance: Coverage Options
There are always part that have more benefits from sale and others are just trying to compensate the expenses.
It’s amazing to me how many homeowners believe a short sale “saves” their credit. In my neck of the woods, a Seller typically has to be at least three months in arrears before the bank will consider allowing the short sale. This means that even if the short sale is approved, you’ve still got the credit penalty of those missed mortgage payments – which can lower your scores as much as 200 points.
Georgia doesn’t require litigation for foreclosure, so things happen quicker – or perhaps “less slow” is a better description. Short Sales should be a last resort and we in the trade should be educating our buyers about the impact of trying to seek that remedy. Nice post…
Joes last blog post..Can the $8,000 Tax Credit save VA Buyers ?
It is important to realize too that the amount you are short can be taxed if the bank issues you a 1099. I think most people don't realize this.
While agree with most of the post, I think a short sale is almost always better than a foreclosure when stacked side by side. Of course there are other options before both, but if they don’t qualify what other choice does someone have? Credit can be repaired.
.-= Shane @ Atlanta GA Short Sales´s last blog ..Short Sale Process Speeds Up =-.
Awesome! Some really helpful information in there. Bookmarked. Excellent source.
My husband and his brother bought our home 4 years ago. His brothers name is on the loan, but both names are on the house deed, Is it possible for my husband to buy the house in short sale if his name isn’t on the loan but on the deed? Thank you.
That is a good questions Stephanie do any of the agents here know the answer to her question? Can her brother in-law short sale the home to her husband even though her husband is on the deed?
Stephanie, unfortunately you cannot do that. It’s a great question, and I get questions like that all the time. When you do a short sale, you will have to sign an addendum stating that it is an arm’s length transaction. Specifically, you are in no way related. The fact that your husband is on the deed makes things infinitely more complicated. So the question boils down to, can it be done? Yes. You just need an ethically challenged real estate agent and risk going to jail for fraud. Personally, I wouldn’t want to even be within 10 miles of this house.
.-= Phoenix Short Sale´s last blog ..Steve Trang Provides Outstanding Service…? =-.
@Phoenix Short Sale – Thank you for the great answer! Stop by again soon!
At first, I thought that short selling has more advantages,than the contrary. The information you have is something that homeowners should look into.
.-= greg s´s last blog ..Contact Us Now =-.
When is the current housing crisis going to be over? After reading your article, I have realized that I am going to be paying on an upside down home for the rest of my life.
Yes short sale property will be best option at this on going slump time. A short sale may protect your credit from further degradation.. It will be easier to repair your credit with a short sale scenario.There are no short cuts to success in sales so please do your research, and consult an expert who will help you make informed decisions.
Is a cousin considered “arm’s length” for a short sale. I have a friend that is considering buying her cousins home on short sale. They are 1st cousins but they don’t have the same last name (because one of them were married). should she be careful or could she take hold of the great deal she would get. Also we live in Michigan if that matters much.
Short sales have advantages, but it’s important that the agent doing them knows about what can happen with the 2nd lender, what are the tax breaks the owner can file federally and in their home state, etc. Hiring a Realtor who does not know these things can make a short sale a lot less beneficial to the seller.
My daughter and her husband are getting a divorce, she is not on the mortgage but had to sign papers at closing.. they live in Oklahoma. So if they put it on a short sale and the bank sells if for 150K and the mortgage is 200K then will they both be hit with a 50K 1099? and or judgment?
Distressed homeowners are usually better off with a short sale over a foreclosure. There are exceptions, of course, but generally, they are worth the effort to minimize the damage to the homeowner.
Is it my understanding, that it’s better to do a short sale rather than to go thru a foreclosure? because right now, I am at that fork in the road and am greatly confused and presently seeking assistance.