A short sale is where a mortgagee (most likely a bank) agrees to the sale of a property for less than the balance of the loan. The new owner is not liable for what is known as the "deficiency balance."
A deficiency balance is the difference between the total unpaid balance of a mortgage (includes principal and all unpaid interest, penalties and legal or other fees) and the amount that the lender is able to recoup from the short sale (the sale price of the home, net real estate agent fees, unpaid property taxes, maintenance and other expenses).
In some instances, the mortgagee will write a contract whereby the former owner agrees to pay the deficiency balance. In other instances, the mortgagee will agree to forgive the deficiency. One Bills.com reader reported the mortgagee agreed to forgive the deficiency if the reader's financial situation remained the same. However, if the reader came into a windfall (winning the lottery, for example) the debt would be owed. A time limit was placed on this condition.
Although there are many inconsistencies about short sales, there is one universal truth about all I have experienced and heard about -- they take time. A quick short sale will take two months to complete. Six months is average. It would take a miracle, and I do not use that word lightly, to list a property, find a buyer, get all three mortgagees to agree to terms, and close in three weeks.
Contact the mortgagee that is foreclosing and ask if you can enter into a short sale agreement whereby you are given six months (or some other time period) to try to find a buyer. Alternatively, ask if it will consider a deed in lieu of foreclosure.
Another option is to consult with a bankruptcy attorney to see if a Chapter 13 bankruptcy would fit with your long-term plans regarding staying in the property (if that is your intent) or quitting the property.
Taxes and foreclosure Leaping ahead a few steps in the process you are in, if the deficiency balances on the mortgages are forgiven, the IRS considers the amount forgiven as imputed income. The Mortgage Forgiveness Debt Relief Act provides tax relief for some mortgage loans forgiven in 2007 through 2012.
I hope this information helps you Find. Learn & Save.