Short sale better than foreclosure? October 12
With the Option ARMs kicking in to their higher rates and/or due to job loss or health emergencies many are not able to make their mortgage payments. And to make matters worse with the house market going down many of them are upside down on their mortgage, meaning their mortgage value is more than that of the house value itself. So even if they were to sell their house, it won’t completely payoff the mortgage. With no options left many just let the bank foreclose on the home and ruin their credit for up to 10 years.
But as mentioned in many other articles on My Credit Report Info and on countless other websites, foreclosure should be avoided at all costs. First you need to call your lender and explain the situation and work out a plan with them. You will be surprised as to the things the lenders will do to keep your business as a foreclosure also costs a lender a lot of money so they want to avoid it too. But if all else fails and you are upside down on your mortgage and you really think you will not be able to afford your house, ask your lender for a short sale. In a nutshell if the lender agrees to a short sale, you can sell the house at a loss and the lender will absorb most, if not all, of the loss. But keep in mind the lender might still ask for a payment on the loss.
For the lender to agree on a short sale, you will need to furnish your financial documents like bank statements and credit card statements showing that you are, in fact, in financial distress. Having a purchase of a brand new BMW or a shiny diamond ring from Cartier on your bank statements is not going to fly. Additionally if the lender does agree to eat up the loss, the IRS might treat that as income and you will be taxed on it. Did we mention calling your lender and working out something with them instead of foreclosing or short selling?