Have you received a Notice of Default for your mortgage lender?

Unless you can bring your payments current, you risk losing your home. There are many financial alternatives for a defaulting homeowner to consider; I?ll discuss the short sale in this article.

A short sale is an acceptance by a lender of title to your house for less than the total amount you owe on it. Short selling happens all the time.; If, for instance, you bargain with a shopkeeper to buy a vase for $25 less than its asking price, you are negotiating a short sale.

Shorts sales are suitable in two situations. The first is on the sale of your house. Suppose you owe $250,000 on your mortgage. You put your house on the market and the best offer you get is $230,000. After closing costs and real agent commission you will be far short of the amount you need to pay off your loan. Approach your lender and explain your situation. Ask if it will accept your net sale proceeds as payment in full.

The lender will make a business decision. First, it will determine if the offer you received on your house is the best obtainable. Second, they need proof that you are unable to pay off the loan deficiency (the difference between the amount owed and the amount offered.)

The lender looks closely at your income and expense statement. This financial statement must be supported by a hardship letter spelling out the special circumstances causing you to fall into arrears. You'll need to explain how those changes or events impaired your ability to make payments. Finally, you must explain why you don't think your situation will improve in the future.

The second instance where a short sale is used is when you are able to get money from a third-party. For instance, if your parents are able to loan or gift you an amount that is reasonably close to the loan-payoff amount, the lender may accept this as payment in full. The same financial statement and hardship letter is required. If the bank accepts this amount, you keep your house.

Short sales can result in tax liability. The deficiency amount is 'debt forgiveness' income and can result in a sizable tax. Consult your tax adviser before making a short sale.

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