A mortgage short sale, most commonly known as a short sale, is selling your home or other real estate for less money than you owe the lender. In a short sale, the bank will get less than owed and therefore must approve the sale of your property. Working with banks to complete a short sale is a very long and drawn out process, but when used in the right situation, will help decrease credit damage and the amount of bad credit you deal with in the future.
A loan modification, also called a “loan mod”, is when a bank agrees to change the terms of your loan so you can afford your payment. In a loan modification, some banks will cut the interest rate of your loan, some reduce the total amount you owe, and some banks will do both. Here’s and example: You owe $250,000 on your home, your interest rate is 6%, and your monthly payment is $2500. The bank reduces the amount you owe to $200,000, changes your interest rate to 3%, and thus, lowers your monthly payment to $1500. These numbers are not real numbers and the terms of each modification vary greatly from bank to bank and person to person. The loan modification process is also long and tedious, but if done correctly, is well worth the headache.
Deed in Lieu of Foreclosure is giving ownership of your home or property back to the bank to avoid a foreclosure. Basically, you say “here are the keys Mr. Bank” and they say thank you and move on. There is still paperwork and approval from the bank involved with this process also.
Short sales, foreclosures and deed in lieu of foreclosure may have tax consequences for you. The only way to find out what the consequences entail is to talk with a certified public accountant or tax attorney about your particular situation.
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