What is a Short Sale?

A “short sale” situation is a property being sold for less than the amount of the outstanding mortgage against the property.  The sale does not occur until the lender has done significant due diligence on the seller’s financial situation and has negotiated an agreed upon purchase price with a buyer.

We are seeing more and more of these types of transactions due to the current real estate market environment where many property values have declined and are now valued less than the owner owes on the property. These transactions involve a distressed asset (in these cases, a residence) and, unfortunately, stressed sellers.

Once all due diligence has been completed by the lender and a viable purchase price has been agreed upon with the buyer, the closing takes place; avoiding a foreclosure. The lender then releases its lien associated with the property and may or may not release the seller from any further liability or obligation on the unpaid portion of the debt. Depending on the seller’s specific circumstances, the lender may require the seller to make payment arrangements to compensate the lender for the unpaid debt or the lender can issue the seller a Form 1099 (as income for the year the sale occurred) for the unpaid portion of the debt.

Although many buyers feel they can get a fabulous deal on short sale properties, BUYERS BEWARE! There can be many pitfalls to watch out for. Please review some of those pitfalls below. We suggest buyers do their homework, research and talk with a qualified real estate attorney experienced with short sale transactions before delving into this type of purchase opportunity.

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