How a Short Sale Works
In an economy where buying and selling are the daily topic, especially with respect to real estate and mortgage. A short sale can be the Cinderella between foreclosure and bankruptcy. Sellers negotiate with banks who are headed towards default or have stopped making any payments. The lender agrees to allow the homeowner or borrower to pay a discounted payoff price on the property. But this does not happen without consequence.
Property Foreclosures
The danger to buying a foreclosed property with a short sale is that there is a possibility that the lender will pursue you for the remainder of the loan. The Mortgage Forgiveness Debt Relief Act 2007 states that the money saved from a short sale could be considered debt-forgiveness income. The deficiency, which is the difference between the amount paid and the amount owed, could be placed into collection making you liable. Before signing a short sale, it is best to consult an attorney or accountant to assess who is responsible for mortgage deficiency especially if the house isn't valued more than the mortgage.
Protecting Yourself from Risk
A family facing foreclosure may damage the interior of the home. Be sure to view and inspect the home before making a purchase if this service is available. Try to purchase the home before foreclosure is final. A distressed homeowner could continue to live in the home for up to one year, or depending on the state, the homeowner may have four months to vacate. A period of redemption will allow the owner irrevocable rights to the property for a determined time period to regain control of the property. It may be necessary to evict a tenant. Remember, you might be evicting a potentially homeless family.
