Q: Can a Home Be Sold for Less Than Its Mortgage?

A: Sometimes. But it is a complicated process and a lot will depend on the lender.

This process is called a “short sale,” which occurs when a lender agrees to write off the portion of a mortgage that is higher than the value of a home. But, usually, a buyer must be willing to purchase the property first.

A short sale may be more complex if the loan has been sold in the secondary market. Then the lender will need permission from Freddie Mac or Fannie Mae, the two major secondary-market players.

If the loan was a low down payment mortgage with private mortgage insurance, the lender also will need to involve the mortgage insurance company that insured the low down payment loan.

The short sale can keep the homeowner from landing in bankruptcy or foreclosure. But it is not an easy procedure to approve, and it involves as much, if not more, paperwork than an original mortgage application.

Instead of proving your credit worthiness and financial stability, you must prove you are broke. And any remaining difference between your home's value and the balance on your mortgage is considered a forgiveness of debt, which usually means it is taxable income.

Reprinted with permission from RISMedia. ©2014. All rights reserved.

 

 

Janet & Graham Ford SRES MSA CSP e-Pro Broker & Associate
http://www.janetford.com
email: info@janetford.com
Janet Cell: (918) 798 4428
Graham Cell: (918) 798 6628
Fax: 918 398 5330 & 800 829 9408
Real Estate Consultant & Marketer of Fine Homes "Putting People First"