If you are facing foreclosure, then you have seen the ads for short sales. Real estate agents all over the country are jumping on the short sale bandwagon. However, most are not experienced in short sales and their advice on complicated legal and tax issues can be dangerous for you.

What is a short sale anyway? You may be facing foreclosure and think that selling is a way out. However, you find that you owe more than your house will sell for. A short sale is when the bank, instead of foreclosing on you, agrees to take less than the amount you owe on your mortgage just to get it sold and off their books. Banks don't like to foreclose on you any more than you like to get foreclosed on. Many times they would rather take a little less today then wait sometimes up to a year before they can get a house foreclosure off their books.

Real estate agents have unfortunately figured out that a short sale option is a great way to get listings. Almost everywhere you look these days is advertisements for real estate agents to take care of your problem with a short sale. However, most agents have never even done a short sale.

Short sales are nothing new to the market. They have been around a long time. They require some work and negotiating with the bank. Most real estate agents only sell an average of 5 houses a year but all of a sudden, they are an expert on short sales.

The problem with using a real estate agent is they have no relationship with the bank. The bank wants to work with someone who is experienced. The bank wants to know that if they agree to a reduced payoff amount, then they will get their money fast.

Agents use a short sale to get a listing. By promising to negotiate with the bank and get your house sold, they get to list your house. They also promise all kinds of things in their ads. I saw an ad the other day where they listed all the benefits of a short sale. One of the things they listed was a tax benefit.

The IRS does not consider a short sale a tax benefit. If you owe money and a portion of the money you owe is forgiven, then the IRS considers that like income. It is money you got to keep and it may be a tax liability not a benefit. Agents are salespeople and their ads are for selling. They are not equipped to give legal or tax advice.

Many agents also charge a higher commission for a short sale. They approach the bank asking them to take less for their payoff but at the same time pay the agent an inflated 10% commission. The bank may not want to reward the agent for their greed so they reject the offer.

You may not even know why the bank rejected your short sale proposal and your agent won't tell you it was because they were too greedy. That is one reason the bank does not like working with agents on short sales. The other is no buyer. Most times when an agent goes to the bank with a short sale proposal, they do not have a buyer for your house. They just have the hope of getting a buyer for your house at that price. The bank is not excited about agreeing to take less if they don't know when or if they will get their money.

To find out if a short sale is an option for you, contact an attorney and ask them what your legal rights are if you get foreclosed on and also if you attempt a short sale. Then contact a tax professional and ask what your tax ramifications are for both.

Never take any legal or tax advice from a real estate agent. Their main goal is to get a listing. If you do sign a listing agreement, never sign a six month exclusive listing. You want the ability to work with other investors to sell your house and not have to pay a commission to the agent if you sell your house yourself. Always sign an open listing agreement. You may lose precious time with an inexperienced and greedy agent who roped you into a six month exclusive listing when you had other options.

A short sale is definitely an option but only if you have all the facts and only if you use the right party. There are experienced real estate investors out there who specialize in short sales, have a track record of successful ones, and have relationships with the banks already. A real estate agent who just wants a piece of the action right now is probably not the right one for you.

Good Luck!

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