Short Sales…the dirty little secret

 With all the hype around foreclosures, it’s close cousin the short sale has received relatively little attention. A short sale is a pre-foreclosure, where the bank agrees to take less than what is owed on the mortgage in a sales transaction, thus eliminating the need for the bank to foreclose on the home. Since the passing of the two housing acts, Mortgage Forgiveness Debt Relief Act of 2007 and The Federal Bailout Legislation in October 2008,home owners are no longer on the line for paying taxes on the difference between what they owed the bank and what they “short” sell the property for. This legislation continues until 2012.
 
  There are many benefit for a bank and a homeowner to go the short sale route rather than the foreclosure route. First, the seller prevents the embarrassment of a public foreclosure advertisement. They also get to live in the home while a real estate agent attempts to secure a buyer for the property. And although a short sale impacts your credit similar to a foreclosure, you can buy a home within two years, whereas a foreclosure typically takes five to seven years before a lender will loan you money for your next home. The bank benefits because they do not have to take back the property and incur all the fees associated with seizing the property, getting it ready for sale, marketing it and managing it until it’s eventually sold, which is typically for pennies on the dollar anyway. They also avoid the liquidity issues imposed on them by the Federal Reserve when taking back homes. In other words, for every home they take back, they are required to reduce the amount of money they can lend thus reducing their profitability. For more information on short sales, please contact us at info@eraexecutives.com.