Homeowners in California who are struggling to pay their mortgage could avoid being foreclosed on. For those who qualify, a short sale allows a home to be sold for less than what is owed on a home loan. Short sales are usually only an option for those who have shown that they are experiencing long-term financial issues and are unable to refinance their loan.
In some cases, lenders ask that the home be put on the market prior to allowing a short sale. There are several benefits that come from allowing a short sale to take place. First, the homeowner does not face the significant negative consequences that foreclosure can bring. Next, the lender does not have to spend time and money going through the foreclosure process. Finally, the neighborhood benefits, because there are fewer vacant properties that can become an eyesore.
Sellers, could also benefit from the fact that any portion of a home loan that is forgiven in a short sale is not considered taxable income. However, it is important to note that secondary mortgage lenders have the right to block a potential short sale. This can happen if the lender thinks that it will get more after the home is foreclosed upon. Short sellers should also understand that it can take much more time to close on a short sale.
If a homeowner is struggling to repay a mortgage, it may be worthwhile to look into any option that could avoid a foreclosure. Short sales may be a viable alternative to a traditional sale or filing for bankruptcy. An attorney may be able to advise an individual about the pros and cons of a short sale and the consequences it could have on a person’s credit and overall financial future.