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What is a Short Sale?

If you bought your home in 2005 or 2006, you’re probably aware of a painful fact: your home is worth less now than it was then. If you also find yourself needing to sell your home, you’re probably wondering how you’ll make up the difference between what you owe on your mortgage and what you’ll  ultimately sell your home for. Under the right circumstances, you’ll probably need to consider a short sale.

Prior to our housing recession, short sales were rare.  Home values consistently appreciated, so unless your home went into a sinkhole, there were few reasons that you would have to sell it for less than what you bought it for. Times have changed. Now banks are paying homeowners to sell their homes short rather than pay with time and legal fees to foreclose.  Almost 34% of all Tallahassee properties listed through the Tallahassee Board of Realtors are presently distressed, meaning that they were or are presently in short sale situations.

Say you bought your home for $100,000 in 2005, but you get it appraised and find it’s now worth $70,000. If you have $30,000 banked you can sell your home and make up the difference to your lender. If you don’t have $30,000, you may be able to negotiate with the lender to sell your home for less than it’s worth.  If the lender agrees and you sell your home, one of three things will happen: 1) the bank will forgive the balance of your unpaid mortgage, 2) the bank will hold you potentially accountable in the future for the unpaid balance, or 3) you and the bank will come to terms regarding repayment of the balance.

It’s likely that your credit will be adversely affected by a short sale, which is why you should do a cost-benefit analysis before proceeding. It’s best to consult a HUD approved housing counselor or a real estate attorney prior to doing a short sale.