Homeowners with financial difficulties, including those facing imminent foreclosure on their homes, may decide that they need to sell their homes even if they don’t make enough to pay off the mortgage. This is known as a short sale, and it’s a complex real estate transaction.
One of the most important things to remember is that because there will still be a balance left on the homeowner’s mortgage after the home sale, the current mortgage company has to approve a short sale. Because of the extra steps involved, a short sale usually takes much longer than a standard home sale process.
Points for buyers to consider
One of the essential points to consider when considering making an offer on a short sale is that these properties are sold as-is. You won’t be able to turn to the seller for any credit, which means you can’t get credit for closing costs or to make repairs on the property.
Closing on a short sale often takes much longer than a regular home purchase because of the approval needed from the current mortgage company. Some are very fickle and may deny the short sale for just about any reason.
Points for sellers to consider
A home seller considering a short sale has the benefit of considerably reducing their debt and getting rid of the home that’s causing financial challenges. They should remember that they will likely still owe the mortgage balance after the home’s sale. Arizona law allows deficiency judgments, meaning the mortgage company could sue for the balance due after the sale.
If the mortgage company writes off or forgives the balance due after a short sale, there will be tax implications. The home seller would receive a 1099 form that counts the balance forgiven as income on their tax return, so they need to find out how this will impact their tax liability.
One of the most important things for you to do when you’re working with a short sale is to protect your rights. Scrutinizing every document that’s part of the sale is critical, but many different documents need to be reviewed. Working with someone familiar with these cases is essential because they know what’s especially important to check in these documents.