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Short sales: Separating fact from fiction

From foreclosure and underwater mortgage to refinancing and short sale, people here in South Carolina and across the U.S. have become accustomed to hearing certain real estate terms in news reports on the television, Internet and radio over the last five years.

While many of these terms were undoubtedly familiar or even self-explanatory, others were likely somewhat unclear. To illustrate, while many people know that a short sale has something to do with the bank, they may not have a clear picture of what exactly it entails.

For those who may be unclear on its meaning, a short sale is simply a transaction where the bank agrees to accept less than what is owed on the mortgage. In the years since the mortgage crisis of 2008, thousands of Americans have completed short sales as an alternative to foreclosure. That's because unlike foreclosure, short sales generally cause far less damage to a person's credit rating, avoid certain taxation issues and grant the homeowner far more control over the sale of their home.

The unfortunate reality is that there are many misconceptions out there concerning short sales that could potentially cause issues for someone considering this as a solution.

Some of these misconceptions include:

  • The entire mortgage debt will be forgiven upon completion of the short sale: Experts indicate that this is not always the case and that some lenders may attempt to collect the unpaid mortgage balance from the borrower. As such, they advise borrowers to confirm in writing that the lender won't seek to secure a deficiency judgment (i.e., the unpaid mortgage balance) upon completion of the short sale.
  • Short sales are completed rather quickly: While it's true that the recent volume of short sales has resulted in shorter turnaround times (30-45 days), experts warn that the process can still take longer than borrowers expect, especially if several prospective buyers withdraw their purchase offers.
  • Short sales can be completed without any assistance: Experts warn that this is simply not true, as there are important and highly complex legal and financial issues that are probably best handled by qualified professionals

Source: The Philadelphia Inquirer, "6 myths about short sales," Alexandra Gallucci, August 20, 2013

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