Fact or Fiction: Short Sales

Staff

4 Min Quiz

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About This Quiz

Along with foreclosures, short sales made up over a quarter of home sales in 2010. A short sale is a great way for house hunters to find a bargain. For homeowners in over their heads, short sales can help them avoid foreclosure and the long-term damage to their credit that goes along with it. Think you're pretty savvy about short sales? Test your knowledge with this quiz!

Short sales damage your credit rating.

While a short sale doesn't harm your credit rating as much as a foreclosure, it does stay on your credit report and can damage your credit for two to three years.

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If you're upside down in your mortgage, a short sale is a good option to get rid of that bad debt.

In order to qualify for a short sale, you have to meet several other criteria as well. The bank normally won't consider a short sale until you're 60 or more days behind in your mortgage payments, and you have to show proof of financial hardship. The bank will also deny you a short sale if you're eligible for loan modification.

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Short sellers may have to pay tax on the forgiven debt.

While the Mortgage Debt Relief Act of 2007 helps some short sellers avoid tax consequences, if the home you're short selling isn't your primary residence or your lender is forgiving more than $2 million in debt, the government considers that to be taxable income.

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When trying to get your bank to approve you for a short sale, filing for bankruptcy can help prove financial hardship.

When a person files for bankruptcy, all forms of collection have to cease, and a short sale is actually considered collection activity.

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Buying a new car while short selling is a bad idea.

Banks see large purchases like a car as proof that you're able to pay that mortgage after all. Part of proving financial hardship is showing that you don't have liquid assets.

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Short sales get their name because the seller needs to get rid of the property quickly.

The name "short sale" refers to the bank taking a loss on the sale of the home. The sale price is short of the amount that the homeowner owes.

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Short sales can take more than four months to close.

In a survey of 600 real estate agents in the U.S., more than two-thirds of the respondents said short sales take between four and nine months to close. Some short sales take even longer, depending on how slowly the lender moves and how prepared the seller and buyer are.

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After a short sale, the bank can sue the seller for the remaining unpaid debt.

While deficiency judgment lawsuits are more often associated with foreclosures, short sellers are vulnerable to this type of lawsuit. Before completing a short sale, it's important to protect yourself by making sure the contract includes an agreement from the bank to waive the deficiency.

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