A short sale is when a lender accepts a discount on a mortgage to avoid a possible foreclosure auction or bankruptcy. A homeowner, who is facing foreclosure, has an existing mortgage of $300,000 and you have a buyer willing to pay $220,000, you would write up a contract between the buyer and the seller, and fax it to the lender. Banks do not like excess inventory and bad loans on their books; therefore, if they see an opportunity where they can get rid of the property without it being a huge loss, they will do it. Borrowers should be aware that receiving a short sale from the lender will still have a detrimental effect on their credit standing. Sometimes this is the only way out for a home owner rather than the home going to foreclosure. Going through a short sale does have a negative affect on your credit. Although "SHORT SALE" is used in real estate lingo to describe a situation where you sell your house for less than you owe, and your lender accepts the lower amount, the IRS does NOT call this situation a SHORT SALE. IRS SHORT SALES apply to the Stock Market. IF your lender approves a property sale for less than you owe, the amount that the lender writes off MAY be reported to you as TAXABLE INCOME. There is RECOURSE debt, and NON Recourse debt. A lender write off of $50,000 means $50,000 may be reported as INCOME TO YOU. The short sale should be the last resort. Reinstatement - This is the amount that you have to pay to your mortgage company in order to bring your loan current. Forbearance - During what is called the forbearance period, the lender agrees to accept less than the full amount for a temporary period. Note Modification - Although you are unable to settle your previous accounts, the lender might agree to modify your mortgage if you make your regular payment now. Repayment Plan - A repayment plan allows you to repay the amount you owe within a fixed period of time, in which your unsettled dues will be combined with your regular monthly payment. Reverse Mortgage - Unlike a second mortgage or the ordinary home equity loan, a reverse mortgage is a special kind of home loan where a homeowner's portion of the equity is converted into cash, and the equity that was accumulated over the years can be paid to the homeowner. Sell Your Home - If you opt to sell your home instead, make sure that you choose a real estate agent who is at once professional and trustworthy, who will look out for your best interests. Deed in Lieu of Foreclosure - In a deed in lieu of foreclosure, the lender agrees to release the debtor from any liability on the loan itself.
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