Things have changed where we have to really think hard on whether we are ready to purchase a home at this time or as a homeowner to sell. Many analysts have said that as homeowners we should hang on a little bit more and things will improve. 

In the meantime, the words foreclosure and short sale are so common these days. We need to understand carefully these two words since this also affects the Buyers where the market is flooded now with this scenario. Foreclosure occurs when a property owner who cannot keep up with the mortgage payments finally gets so behind in payments they are foreclosed upon by the lender/bank. They have the option of handling over the property voluntarily or the bank will institute eviction proceedings against the owner or any tenants. A foreclosure will have long-lasting negative impacts on a borrower/property owner’s credit score, thus making it difficult to purchase any other property in the near future. Moreover, the cancellation of the mortgage by the bank upon foreclosure will also trigger taxable income to the homeowner. 

Given these negative impacts, many homeowners facing foreclosure are seeking alternative ways to impact the ease of their situation. One alternative is called the short sale. Short sale occurs when a homeowner seeks the lender’s approval to sell his/her property for less than what is owed in the mortgage. Although lenders generally don’t like to approve short sales, many of them will do so rather than have to take the property back and risk selling it for even less in a foreclosure sale. Homeowners are required to have their hardship in order to obtain a short sale and the approval process can take weeks, sometimes months.

A homeowner should remember that the lender can report a short sale transaction to the credit bureaus just as they do with foreclosure. While the outcome may be better than a foreclosure, a short sale transaction can still have a long-lasting impact on your credit rating. Moreover, the homeowner may still have a sizable tax bill under IRS rules. Under IRS rules, a homeowner who sells his/her home in a short sale may get a 1099-A from the lender/bank for the total amount of the mortgage balance “forgiven”-even if the lender agrees to “forgive” the debt thru short sale. The property is therefore treated by the IRS as if it were sold for the total outstanding balance of the loan, or the sale price if it is higher. To be sure, you need to check with your accountant in this regard. 

As a Buyer, you may be able to get the best price you want these days. However, buying or selling foreclosed or short sale homes is somewhat complicated. You need to get a professional realtor to get the best results you deserved.