Unfortunately many home prices are starting to drop across the country. The real estate bubble has officially burst. In addition, the past 10 years saw record numbers of re-finances, home equity loans and lines of credit. What does this potentially add up to? Financial disaster if you need to sell your house quickly.
Many homeowners have borrowed against the growing equity in their homes. Now that equity is shrinking, and for some to the point where they owe more on their homes than the house is worth. While this can be okay if you plan to keep your house long term to give it time to regain value and to pay down a loan, it can be tragedy for someone who has to sell fast.
Many situations call for a fast home sale: changing jobs, financial hardship, divorce, and health reasons. If you do have to sell a home where you owe more than it is worth, you should look into a short sale.
In a short sale, the lender allows you to try and sell the house for as much as you can. Then they take all the proceeds in lieu of the original loan amount. Basically, you end up giving away all the money received to the mortgage company and the balance is erased.
While this sounds reasonably ideal, not all lenders will agree to it. It may take some negotiations or the help of a real estate attorney. Often lenders won’t help either unless you have fallen way behind on your payments. This in itself will begin the process of ruining your credit, so consider that in your negotiations with the lender as well.
If you do arrange a short sale, be sure to also consult a tax professional. The Internal Revenue Service does consider some kinds of forgiven debt as income and you may own taxes on the difference.
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*Selling Your Home – An Overview
*Spend as Little as Possible on Your Home