Short sales can be a life-changing option for many people. Although it can be painful to walk away from your home, it's important to realize you can make any house a home. If you are facing foreclosure, real estate short sales can provide you with the opportunity to break free from the bondage of homeownership and make a fresh start.

Real estate short sales are occasionally offered to homeowners who are seriously delinquent on their mortgage payments. When properly negotiated, homeowners are able to walk away from the property, salvage what is left of their credit and avoid foreclosure.

In order to keep the house out of foreclosure, lenders might accept less than is owed on the mortgage note. Certain requirements must be met including the presentation of a short sale package. Although requirements vary from lender to lender, typically lenders will require the following information:

1. Financial statement which includes details of income and expenses
2. Short sale hardship letter
3. Bank statements, investment statements and current year tax return
4. Realtor listing agreement
5. Signed sales contract
6. Estimate settlement statement (HUD-1)
7. Proof of buyer's financing

Additionally, short sales agreements require that you cannot have any equity in your home and must owe more on the mortgage note than the home is worth. Short sales can be quite complex, therefore it's a good idea to hire a professional who can assist you in organizing and negotiating a short sale offer.

The primary goal in real estate short sales is to convince the lender's loss mitigation department to accept 'payment in full without pursuit of deficiency judgment.' What this means is the lender agrees to accept a lesser amount than is owed on the note and will not pursue you for the difference. Not all banks will agree to this and some require homeowner's to pay the difference between the short sale amount and loan balance.

For instance, if the mortgage note balance is $100,000 and the bank agrees to accept $95,000, you could be responsible for the $5,000 difference. If you are unable to pay the difference, the lender can file a deficiency judgment against you. Deficiency judgments are reported to credit bureaus and can remain on your credit history for 7 to 10 years, even when it has been paid in full.

Another downside of short sales is that you may have to pay income tax on the difference. Using the example above, you could end up owing tax on the $5,000. Working with a short sales specialist can help you avoid the pitfalls of this type of real estate transaction.

While short sales will not allow you to retain your home, they can help you retain your pride and integrity. Short sales are usually less detrimental to your credit; however, they can prevent you from purchasing another home for several years.

Take time to fully understand the pros and cons of short sales prior to making a final decision. Work with an individual or organization that specializes in short sales to ensure you obtain the best deal and the least harm to your credit.

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