For people, who cannot keep up with their mortgage payments and are close to a bankruptcy, short sale seems to be the easiest option instead of a foreclosure. Short sale means the lender has agreed to take an amount lesser than what is actually due. However, this whole sale depends on how much is left to pay on your mortgage. Lenders may not always agree to do a short sale, and sometimes foreclosure makes more sense to them. Also, the lender has the final say in the sale. It is the lender who approves the price offered by the buyer. Here the homeowner does not make a profit out of the sale. All proceeds go to the lender. Also, if you are buying a short sale property, then you have to consider several things before you do that. It is always better to take legal advice before you make the investment. Short sale is not always trouble free, and you need to check out all the facts well in advance. Also, the IRS considers debt forgiveness as an income for a person. So you need to check with the mortgage and also the tax ramifications before opting for a short sale.
Sometimes, there can be multiple liens on the property. In this case, not all lenders may agree to the short sale. This could make the sale a delaying and drawn out process as all the lenders would have to be persuaded to agree on the sale.
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