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How does a short sale work?

If you decide to get involved in a short sale, you could help yourself avoid a foreclosure. In the spring months, real estate sales tend to increase along with the release of short-sale properties on the market. Short sales take longer to finalize and are more complex than other kinds of property purchases, so it's important to know what will happen.

To start with, a short sale is a sale that takes place for less money than is owed to the mortgage company. For instance, if you owe $40,000 and sell your home for $35,000, then normally you'd be short of cash and have to make up the difference. With a short sale, that difference may be forgiven, if the mortgage company agrees.

Both foreclosures and short sales negatively affect your credit score, so it's important to make sure that this is the way forward with your finances. If it's possible to go through a bankruptcy or other process to reduce your debt without selling your home this way, it could be beneficial to you. However, if a short sale is your best option, then you'll want to reach out to your mortgage company with the help of your attorney. If you can get your mortgage company to agree to report the sale as being "paid in full," your credit may not be as badly affected, helping you find another home without as much of a struggle.

In any case where you're considering selling your home, working with your attorney can help you determine the best way to reduce your debts and liabilities. In cases where you're considering bankruptcy or a short sale, there may be other options available.

Source: Bankrate, "How to navigate a short sale," Jennie Phipps, accessed April 15, 2016

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