With the staggering number of home foreclosures in this economy, many homeowners are seeking a way out of their debts. Homeowners see bankruptcy and short sales as potential solutions to their debt concerns. However, these processes are not usually as easy as a homeowner would hope.
A short sale is the term used to describe the sale of real estate for less than the amount owed on the mortgage. Typically during a short sale, the mortgage holders negotiate and accept a payment for less than the amount the homeowner owes on the mortgage. In exchange for payment of this reduced amount, the mortgage holder releases the lien it holds on the property. Even if there is an agreement to accept a lower amount, the mortgage holder may still hold a deficiency. A deficiency is the amount the mortgage holder did not collect from the homeowner, but still may be entitled to collect. A mortgage holder can try to collect the deficiency from the homeowner unless there is an agreement between the parties that eliminates the deficiency.
One Florida homeowner would agree that a short sale is not easy. The homeowner was attempting to pursue a short sale, but met resistance and inflexibility from the holder of the second mortgage on the home. The first mortgage holder lent the majority of the money to purchase the home and agreed to work complete the short sale. The second mortgage holder would not negotiate. Years later - after countless hours and numerous phone calls - the short sale has still yet to be completed because of the second mortgage holder's refusal to cooperate.
In addition to the uncertainty of getting the mortgage holders to agree to a short sale, the transaction also has other downfalls. For example, a short sale can damage a homeowner's credit, making it difficult to purchase another home. In addition, the homeowner may still be held liable for the deficiency. Finally, there may be significant tax consequences because the amount written off by the mortgage holder may be considered taxable income for the homeowner.
Because of the consequences of a short sale transaction, a homeowner struggling with a mortgage should first contact an attorney who can help make choices about the best path to choose.
