Lafayette: (765) 420-8900Monticello: (574) 583-6411

Short Sales as the Best Alternative: The Pros and Cons

Pro: You can avoid foreclosure.

Short sales do more than just help you leave a Lafayette, Indiana house you can no longer financially handle.  An effective short sale allows you to prevent foreclosure on your credit record. While that is a positive objective, short sales do not exactly look good on your credit record. A creditor is still being left underpaid. Not to mention, the number of recent foreclosures may very well decrease the severity in the long run.

Con: A lienholder doesn’t get paid.

Short sales get their namesake from the idea of “shorting” a lienholder. This means that you pay them less than is deserved because the sale price of the home is not enough to compensate everyone fully.

Because so many homes were worth less than what was owed on them, short sales became common during the worst periods of the real estate crash.  While the real estate market has recovered in a great deal of the country, there are still many homes that are still in this position and can only be sold through a short sale.

Con: Short sales are tough to close.

If someone such as a mortgage owner has a lien on your house and legally deserves their full payment, it is unlikely that they will take anything less before they release the lien. Unfortunately, the release of all liens is the only way to close a short sale. The worst news: Everything from unpaid utilities to property taxes can be an involuntary lien. Needing all lienholders to release their liens makes short sales difficult to close.

Con: Short sales tend to come apart.

Short sales can be as hard to pull together as they are to close, and often times they come apart and you Lafayette, Indiana house remains unsold. Here are a few reasons short sales fall apart.

Uncooperative mortgage lenders dragging their feet: Usually, a short sale requires the first mortgage holder to give a portion of sale earnings to one or two junior lienholders. There is one reason the first mortgage holder would do this: gaining less money from the sale is better than dealing with the expenses and time as a foreclosure. While mortgage lenders seem to be working to make the short sale process smoother, working with them can still be very troublesome.

One bad lienholder spoils the bunch: Some people simply do not want to settle for less, and less is exactly what they get in a short sale. One lienholder can refuse to take the decreased payment and threaten the sale.

Real estate middlemen have a lot to gain: Those in the real estate industry might be the biggest winners in a short sale. Bankruptcy judges and impartial outsiders often discourage shorts sales for a reason.

Con: Short sales can be risky for you.

Short sales are risky business. In a short sale, lienholders who were not paid fully could end up being a legal liability for you. You could even end up owing extra income taxes.

Liens and junior mortgages with unpaid balances can become problematic in a short sale. Despite what you have been told, it is not necessarily true that you will not be liable for debts left unpaid in full from the sale. Make sure that liability has been cut off with documents and applicable law. Getting the deal done may seem like the only goal, but being required to accept extra liability is not often in your best interest.

Let’s face it, taxes are very important, but very difficult to explain in a short blurb. The general idea is that debt forgiveness can be seen as taxable income if you are not seen as an exception. Be sure to discuss this possibility with a tax specialist before beginning the short sale process.

When it comes down to it, things that seem too good to be true usually are, and desperate attempts at a solution (like a short sale) can often go awry. For more information on solutions, alternatives, and bankruptcy, contact the Law Offices of Brad A. Woolley for professional bankruptcy attorney help.