Given the choice between a foreclosure and a short sale, which would you choose? Most people in Florida zero in one the word “sale” and make a quick decision. Although it certainly seems like a smarter option to quickly sell before home foreclosure hits, it can actually do a great deal of harm.
So what is a short sale? A prospective buyer offers to purchase the house for less than what you currently owe on the mortgage. After that, you negotiate with your bank to avoid foreclosure, and get the lender to agree to accept the offered amount. Then you sell your home and avoid foreclosure. You could also lose out — big time.
Although avoiding foreclosure is an understandable goal, short sales benefit everyone else but you. The real estate agent gets a cut of the sale, the new owner gets a home for a low price and the bank reduces its risk of holding onto a property that does not sell. And you? You are out of a house and your bank might make you still pay back the difference between your house’s original mortgage and the short sale’s purchase price. Even if the lender forgives that portion of the loan, there are usually tax consequences that you will have to take on.
No one wants to deal with a possible home foreclosure. The very idea is heart-wrenching considering how hard most Florida homeowners worked to reach their goals. There are several smart options for dealing with foreclosures — including loan modifications — but a short sale is usually not one of them.