A short sale may be a viable alternative for homeowners who are facing foreclosure. It essentially involves homeowners selling their home themselves rather than having the lender take it over or declaring bankruptcy. However, they sell it for less than the amount they owe on their mortgage.
The lender who holds the mortgage has to approve a short sale. While you might wonder why a financial institution or other lender would agree to a deal that would leave them "short" the full amount they are due, it can be in their best interest.
For one thing, government programs are increasingly giving incentive to lenders who work with borrowers to avoid foreclosure by methods such as short sales. Further, foreclosure is expensive for lenders. Therefore, it may make more sense for them financially to approve a short sale.
While a short sale will not have the same impact on your credit score as a foreclosure or bankruptcy, your credit score will still take a hit. Therefore, it's best to discuss the credit, financial and tax ramifications of a short sale with professionals who can help advise you about your best option. There are also government programs that help homeowners modify the terms of their mortgage so that they can stay in their homes.
If you're having problems keeping up with your mortgage payments, talk with your lender to find out what options they're able and willing to offer you. It's also a good idea to seek the advice of an experienced New York real estate attorney who can provide advice and help you through with whatever option you choose.
Source: FindLaw, "How a Short Sale Works for Homeowners Facing Foreclosure," Javier Lavagnino, Esq., accessed July 13, 2016