Colorado Home Buyers

What is a Short sale? - Short sales have increased
As the number of borrowers falling behind on their mortgage payments climbs to the highest level in five years, the number of “short sales” is increasing.
In a short sale of a home, a lender allows the property to be sold for less than the total amount due. In many cases, the lender forgives the remaining debt.
Short sales fell out of favor when mortgage delinquencies were low and rising home process made it easy for borrowers who ran into trouble to sell their homes or refinance their mortgages. But as the housing market cools, interest in short sales in increasing.
Bank of America says it saw short sales of homes increase 35% last year, albeit from relatively low levels. In Sand Diego, the number of entries in the local MLS that include the words ‘Short Sale” has climbed to 129 from 50 a little more than a year ago.
Economists attribute the increase in delinquencies in part to a weaker housing market and the widespread use of adjustable-rate mortgages, many of which now are resetting at higher rates. In addition, as demand for mortgages softened, lenders loosened their standards and made riskier loans.
For a lender, a short sale can be appealing because the process can be shorter and less costly than foreclosing, especially in a declining market. Lenders can avoid the costs of property maintenance, utilities and homeowners’ association fees. Properties that go into foreclosure can take longer to sell, particularly in a declining market. There’s also the chance that the property could be vandalized.
For borrowers, a short sale is a way to avoid having a foreclosure on their credit report. A short sale can be less of a black mark than a foreclosure on a borrower’s credit record because it indicates that the borrower was working with the lender.
But there can be downsides as well. Under certain circumstances, the debt forgiven by the bank may be taxable to the borrower. What’s more, convincing a lender to go along with a short sale can be difficult. Borrowers who have a mortgage and a home equity loan may also have to negotiate with two lenders or two departments of the same bank.

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