What Is A Short Sale In Real Estate ?
A short sale in real estate is a way of selling a home in order to avoid impending foreclosure or filing for bankruptcy. Usually this situation occurs when a homeowner is unable to meet his financial obligations towards mortgage repayment. |
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In order to proceed with a short sale, a homeowner has to first get approval from the lender. Once this approval comes, the sale can be closed. When a lender approves a short sale in real estate, it means that he is willing to accept less amount for the house than what the amount is due on the mortgage. Sometimes, a lender may not agree to a short sale as he will feel that he can recover the full amount due through a foreclosure. That is why an approval is required.
Also, when the house is sold for an amount that is less than the amount due on the mortgage, the lender gives the homeowner a 1099 form. There are tax implications on this sale as the difference that is not paid on the mortgage is viewed as a phantom income by the IRS, and the homeowner is required to pay taxes on it. Also, if the buyer does not agree with the lender to ensure that the homebuyer is not pursued for the difference, then it is quite possible that the lender will come after the seller for that amount.
In order to get approval for a short sale, a homeowner has to submit many different documents related to his finances, income tax and income. Also, a hardship letter has to be written explaining why the homeowner is seeking a short sale along with valid reasons. Once all the required documents are submitted, the lender will review the application and then either approve the sale or reject it.
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