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How a short sale can stop home foreclosure

Significant financial changes can leave some Florida homeowners short when it comes to paying their monthly mortgage. Short sales are often billed as an effective way to stop home foreclosure, even if it means that the owner has to sell the house and move out. While a short sale can be effective at stopping foreclosure, there are also some significant consequences that should be considered. 

In a short sale, a homeowner sells the home for less than he or she still owes on the mortgage. However, simply finding a buyer is not enough. The homeowner must get the lender to accept the lesser amount as the last payment on the original loan. To make this work, the lender must believe that the short sale will be better for it than foreclosure action. 

However, if the short sale takes too long or if the homeowner cannot find a buyer within a certain period of time, the lender may choose to move forward with foreclosure proceedings anyway. If the short sale does go through, the homeowner will not totally be in the clear of the debt, either. The IRS will tax any forgiven debt in a short sale -- the difference between what was owed on the mortgage and what the home actually sold for -- as income. This could bump some borrowers up into another tax bracket, leaving them in a difficult position come tax season. 

Although short sales can be effective for those who hope to stop home foreclosure, they are not an appropriate choice for everyone. In some cases, bankruptcy might provide a better path for consumers struggling to pay their bills. Florida homeowners who are curious about the process are well-advised to consult with an expert before moving forward with any decisions. 

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Paul Urich
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