FORECLOSURE ALTERNATIVE: THE SHORT SALE

Short Sales Get Government Incentives

Although short sales aren't hassle-free, at least you've got the government backing you. The Home Affordable Foreclosure Alternatives (HAFA) program provides financial incentives for lenders and borrowers to avoid foreclosure through short sales ordeeds in lieu of foreclosures.

Its geared to homeowners who cant keep their home with the help of aloan modification. To use the HAFA program, and get through the process as quickly as possible, follow the guidelines exactly. The deadline to apply for HAFA is Dec, 31, 2015.

Advantages of a Short Sale Process

You can:

Be a homeowner again more quicklywith a short sale in your past than with a foreclosure. New Fannie Mae guidelines help you qualify for a new mortgage in as little as two years after a short sale, as opposed to up to seven years after a foreclosure.

Have more time to make relocation plans and save moneythan with a deed in lieu. A short sale may take four to 12 months. A deed in lieu of foreclosure arrangement typically requires you vacate your home within 30 to 60 days of signing, according to real estate attorney Lance Churchill.

Receive up to 3,000 from your lender for moving expensesat the time of closing of a HAFA short sale or a HAFA deed in lieu of foreclosure. Relocation funds are part of the incentives of HAFA, but not necessarily for other short sale or deed in lieu programs of the lenders.

Help your community's home values.Because the lender often receives a higher amount of the remaining loan balance than it would from the sale of a home after a foreclosure, short sales help support home values in the surrounding community.

Disadvantages of a Short Sale

Yourcredit scorewill take a severe hit.But that would happen anyway with a foreclosure. Fair Isaac, creator of the FICO score, says foreclosure and short sales have virtually identical impacts on your credit score. VantageScore, a company that has created a credit score model for consumers, says a short sale will lead to only a marginally lighter hit when compared with foreclosure.

You may owe additional taxeson any forgiven debt. For example, suppose:

• You owe 100,000 on your mortgage.

• Your lender lets you short sell your home for 90,000.

• You could owe income tax on the forgiven 10,000 the difference between the 100,000 you owed and the 90,000 you repaid.

However, the Mortgage Forgiveness Debt Relief Act of 2007, which runs through Dec. 31, 2013, lets you exclude the debt your mortgage lender forgives if:

• The home was your main residence.

• You used the loan to acquire, construct, or rehabilitate a principal residence.

• For married couples, the loan was for no more than 2 million (1 million for singles or joint filers).

UseIRS form 4681to calculate your taxes. Consult a tax professional and an attorney to minimize or avoid this liability.

In some states, your lender may still be able to come after youfor the difference between the short sale price and the amount needed to pay off the mortgage. Your actual agreement with your lender and state and local laws and regulations spell out the details. Consult a tax professional and an attorney to minimize or avoid this liability.

How to Proceed with a Short Sale

Find a REALTOR® experienced in short sales.Short sales are tough to navigate, and they're further complicated by your loan type -- FHA vs. VA vs. conventional loans. Real estate agents who specialize in short sales will know the proper steps and order of the steps involved. They'll also be able to navigate the many parties involved in the process and over-burdened loss mitigation departments. Look especially for agents who have Short Sales and Foreclosure Resource (SFR) Certification, which requires specialized training.

Gather evidenceto support your need for a short sale as opposed to a foreclosure. You'll need to prove that you have little or no equity in your home, you're behind on your payments, and you're no longer able to afford your home. You'll need to write a hardship letter to the lender describing your circumstances, such as a divorce, job loss, illness, death, or other event that has impacted your income.

A short sale can be a time-consuming process, but if you can avoid foreclosure, it's worth it in the long run.