Short Sale vs. Foreclosure

Short sales and foreclosures are the two most common ways to close a delinquent loan. In a short sale, the lender agrees to accept less than what is owed in exchange for avoiding the expensive and lengthy foreclosure process. In a foreclosure, the lender will repossess the property from a borrower and then try to sell it on the open market in order to recover a portion of their money.

Over the past year millions of borrowers have decided to simply stop paying their mortgage and from their homes, handing ownership over to the banks. Individuals who default on their mortgage and go through foreclosure have their credit ratings ruined for 7 years further complicating their lives. They will find it virtually impossible to secure a future mortgage or financing for any other purpose. Homeowners should weigh the benefits of a short sale (better credit ratings, and elimination of debt) versus ruined credit and the embarrassment of being evicted from their own home during a foreclosure. The Federal government has recognized that short sales are a favorable option to bring the current housing meltdown to an end.

Industry experts agree that it is in both the homeowners and lenders best interest to perform a short sale. Congress recently passed legislation that ceases taxation obligations on short sales and encourages lenders to negotiate solutions with distressed homeowners.

Jessica Leimbach of JLL Real Estate/ M&B Realty explains, "The passage of the Mortgage Forgiveness Tax Relief Act in 2007 eliminated the tax obligation for homeowners who have their mortgage debt released through a short sale and foreclosure (up to $1 million per individual or $2 million per couple)."

Jessica makes clear that with taxes no longer an issue, short sales are clearly the best option for homeowners in distress as well as for lenders. This legislation helped create a surge in demand for short sale services. Banks recognize that foreclosures hurt the homeowner, scar neighborhoods, and most of all are expensive. Beyond the financial implications, a short sale upholds the homeowners dignity and helps avoid the unpleasant process of eviction.

Theres no doubt that tough times are upon us, but homeowners can take comfort in the fact that there is a light at the end of the tunnel. The market will naturally adjust itself as savvy buyers purchase property at affordable prices alleviating the glut in housing supply. Most industry experts agree that the housing market will begin recovering towards early to mid 2010 (Wall Street Journal) and that the increase in short sale transactions may be speeding up the recovery process. Homeowners must avoid the foreclosure option completely and turn to other practical solutions. Companies like I Short Salenow provide free consultations to property owners by working on their behalf to alleviate the burden of debt and give them a fresh start.