Short SalesOne of the options of a homeowner facing foreclosure possiblities is a short sale. A short sale applies when market value of your home is less than what you owe on your combine mortgage loans. The lender must approve a short sale that allows you to sell your home at less than what you owe. Lenders usually do not approve short sales without hard proof that you are experiencing financial hardship.
How You Win
You are able to get rid of the home and maintain your credit without foreclosuring. Once you foreclose on a home, banks will usually not lend you money for another home for around 5-7 years.
How The Banks Win
Banks will not have to go through a lengthy foreclosure process that is costly.
How The Buyer Win
Buyers of foreclosure properties are able to get a property at a discounted price.
How You Lose
Keep in mind that you will need to pay taxes on the difference between the short sale and how much you owe. For example, if you owe $100,000 and you see your home in a short sale at $80,000, you will owe taxes on the $20,000, which depending on your situtation, will be as low as 0 to even over $8,000 if you are in the higher tax bracket.