A short sale means that the property is sold for less than is owed on the mortgage. For example, you owe $150K on the property but you only get an offer for $130 and the mortgage lender agrees to accepte that amount because there are no other offers coming in on the property. The mortgage lender in a sense (on paper) forgives the $20K that you are deficient to pay off the full amount owed on the mortgage loan.
Now some things to consider:
Will this show up on your credit report as a foreclosure? Sometimes, yes and sometimes no. It all depends on the wording in the short sale paperwork. If you are late with payments, that obviously will show up. But, if you are not late, but just caught up in these stinking market conditions, then no lates will show up because there have been none. You may want to talk to a real estate attorney.
Caution: In some instances, the mortgage broker will send you a statement at the end of the year and you have to pay taxes on the amount that you were deficient and did not pay. In some cases, the IRS considers this as income (money you saved) and you have to pay them for this benefit. This also happens with some settled accounts wherein you settle for more than $600 in difference. Just a thought -- you may want to consult an accountant on this.
Hope this helps....I am sure others will respond with more information.
Best wishes,
Missy
