“My wife and I need to sell our condo, but we owe $519,000 and its only worth about $495,000. An agent we know told us we could do something called a short sale where the bank agrees to accept the proceeds from the sale even though its less than the $520,000? The agent made it sound so easy, which of course made me concerned. Is there any downside?
***ANSWER:
Not everyone qualifies for a short sale. If you do qualify, there are some very real downsides you should know:
1. Credit-
Short sales usually cause major credit damage. Most mortgage lenders tell me its as bad as a foreclosure. Others tell me its not quite as bad.
2. Tax-
Youll probably actually owe income tax on the amount of debt forgiveness, i.e. the amount your lender agrees to lose on the sale. There are exceptions.
3. Hassle-
Short sales are NOT easy. They require as much paperwork as getting a full-documentation mortgage: tax returns, pay stubs, bank statements, appraisal, etc. And then it takes weeks or even MONTHS for the bank to give you a Yes or No. Most smart buyers and their agents avoid short sales for exactly this reason as well as because of #4 below. And this causes them to take much longer to sell.
4. Low probability of success-
You can go through all that hassle and be denied. I have no official stats, but Im guessing that at most 1/3 of short sales actually sell and close. For agents REALLY knowledgeable in short sales, it may be double that.
