But short sales do still happen, even in the housing market\u2019s glory days. Tamara Bourne<\/a>, a top agent in Peachtree City, GA,<\/a> who\u2019s facilitated nearly 1,000 transactions to date, recalls a time when a school system lost Georgia accreditation and tanked property values, \u201cso [residents\u2019] houses were no longer worth what they were when they bought them,\u201d she says.<\/p>\n Whatever the case, be sure you\u2019re aware of all the strings attached for your particular lender agreement and check the fine print of your short sale arrangement before you sign anything\u2014start with these six things to be wary of.<\/p>\n For a lender, a short sale is more appealing than a foreclosure<\/a>, where the bank would assume the risk and legal costs of an REO property\u2014in other words, a piece of real estate that the lender now owns. A short sale also allows a lender to minimize its losses.<\/p>\n That said, you may have other options for handling an upside-down or underwater mortgage. You can:<\/p>\n Also, if refinancing your home for more than its worth<\/a> has landed you in this situation, you might not need a short sale if you can return any of the money you\u2019ve borrowed.<\/p>\n \u201cI would always tell [clients] you actually got the money on a refinancing situation. They’d already taken the money out of the house. Could they bring it back to the table at closing? Which I think is the best thing to do, the most honest thing,\u201d Bourne said.<\/p>\n A short sale doesn\u2019t affect your credit score<\/a> in the same way as a foreclosure, but it does stay on your financial record for a while. The Federal Trade Commission says that people who go through a foreclosure may have to wait seven years before they\u2019re eligible for a new mortgage<\/a>, while those who go through a short sale may qualify in two years.<\/p>\n A short sale also can lower your credit score by 85 to 160 points<\/a>. The good news is, you can repair your credit within a few years if you continue to pay other bills on time.<\/p>\n \u201cMost people go rent a house for three or four years\u201d after a short sale, Bourne said. \u201cThen we sell them a home when their credit is returned.\u201d<\/p>\n For a short sale, you\u2019ll work with your agent to provide your bank or lender with a market analysis about your neighborhood and documents supporting your financial hardship. The lender then decides whether to approve your short sale, Bourne said.<\/p>\n But even after your property sells, you still may owe money if the lender or lenders doesn\u2019t cancel or \u201cforgive\u201d the remaining debt.<\/p>\n \u201cIt\u2019s not across the board one way,\u201d Bourne said. \u201cSometimes the whole thing is forgiven. Sometimes they\u2019ll make augmented payments paid back. Sometimes it’s taxable. Sometimes it’s not.\u201d<\/p>\n The amount of debt that you couldn\u2019t pay back on the mortgage can be considered a windfall, so to speak, as far as the IRS is concerned. If the bank \u201cforgives\u201d or cancels any outstanding debt that\u2019s subject to taxation, you\u2019ll receive a 1099-C form, or Cancellation of Debt<\/a> form, which must be filed with your federal tax return and added to your gross income.<\/p>\n Sometimes the canceled debt isn\u2019t recorded as income but a \u201csale\u201d for tax purposes and subject to capital gains or losses<\/a>, according to Turbo Tax.<\/p>\n Talk to your agent and a tax professional about your particular situation to gauge whether you\u2019d be financially responsible for the outcome of a short sale.<\/p>\n The name aside, short sales can be lengthy, lasting months or years because of the legal guidelines<\/a> involved. For example, once the house is listed for sale, the bank or lender fields and reviews any offers. \u201cThey [the potential buyers] send the offer in, and then the bank now negotiates that offer, if they\u2019ll take it or not,\u201d Bourne said. \u201cThe bank\u2019s involved a lot more.\u201d<\/p>\n Responding to concerns from the National Association of Realtors, the US Treasury Department has developed the Home Affordable Foreclosure Avoidance (HAFA) Program<\/a> to establish uniform procedures, forms, and deadlines for short sales and transactions that return the property to the lender (known as a Deed-in-Lieu of foreclosure, or DIL).<\/p>\n The HAFA Program provides several benefits, such as $3,000 to borrowers for relocation assistance. To qualify, borrowers must have a documented financial hardship and:<\/p>\n \u201cEven if successful, the process usually takes many months and countless hours and often requires re-marketing because buyers lose patience and terminate the contract,\u201d NAR notes<\/a>.<\/p>\n Of course, all of the above considerations are contingent upon whether your bank or lender determines that you qualify for a short sale.<\/p>\n To start the process, after your agent\u2019s market analysis, you\u2019ll have to write a hardship letter<\/a> with your agent\u2019s guidance that explains your current financial instability and essentially apologizes to the lender for being unable to repay the mortgage. Common reasons for such hardship are a job transfer, loss of income, divorce, or death in the family.<\/p>\n You\u2019ll also undergo a personal finance audit, providing proof of income, any assets (money market accounts or other property), and bank statements to prove your current financial situation, submitting up-to-date records and thorough documentation.<\/p>\n As short sale expert Brad Wallace<\/a> of Philadelphia notes<\/a>, \u201cYou\u2019ve got to be able to qualify for a short sale. It\u2019s all numbers. You\u2019d better show that your bills outweigh your assets, or they will turn you down.\u201d<\/p>\n A real estate agent who is experienced with short sales<\/a> is vital to navigating this complicated transaction.<\/p>\n Discuss the agent\u2019s prior experience, any short sales they\u2019ve completed with your specific lender, and any additional training or certification they have.<\/p>\n For instance, NAR offers a Short Sales and Foreclosures Resource Certification<\/a> program. An agent also may be a Certified Distressed Property Expert<\/a> who has extensive knowledge of foreclosure avoidance options such as short sales.<\/p>\n Take your time before deciding whether to pursue a short sale, and do more research relevant to your particular circumstances. The Consumer Financial Protection Bureau provides housing counselors<\/a> nationwide who are approved by the U.S. Department of Housing and Urban Development to offer independent advice about mortgage terms, defaults, foreclosures, short sales, and other credit issues.<\/p>\n![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/03\/short-sale-paint.jpg\")
<\/a>1. You may have better options at your disposal.<\/h2>\n
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2. Be aware that your credit score is not safe.<\/h2>\n
3. Your lender won\u2019t necessarily cancel the remaining debt.<\/h2>\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/03\/short-sale-calculator.jpg\")
<\/a>4. Any forgiven debt may be considered taxable income.<\/h2>\n
5. Short sales are anything but \u201cshort\u201d in length.<\/h2>\n
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![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/03\/short-sale-bank.jpg\")
<\/a>6. Whether your home qualifies for a short sale is up to the bank.<\/h2>\n