New guidelines by the Federal Housing Finance Agency will expedite short sales and help some homeowners and banks avoid foreclosure. According to the FHFA, the guidelines:
- Reduce the amount of documentation required to expedite a short sale for borrowers in serious financial distress
- Allow service members with permanent change of station orders to be automatically eligible for short sales even if they are current on their mortgage payments
- Clarify how the short sale process should work, including the timelines a borrower must follow
- Offer incentives to expedite short sales, including incentives involving second-lien holders
These new guidelines follow guidelines released by the FHFA in June that require loan servicers to respond to short sale offers within 30 days and give borrowers status updates each week.
Bankruptcy: An Alternative to Consider
While short sales might seem like a good alternative to foreclosure, there may be another option available for you that may even let you keep your home: Filing for bankruptcy. Through a Chapter 13 bankruptcy, you can work out a payment plan to pay back your mortgage arrears. If you choose not to keep your home, you can discharge your mortgage debt through a Chapter 7 bankruptcy.
Bankruptcy may be the best option for you if you wish to avoid paying extra money in taxes. When a homeowner agrees to a short sale, he or she may be required to pay taxes on the forgiven debt (which could be considered gross income). Extra tax debt is the last thing you want to have when you are already struggling financially.
Source: CBS MoneyWatch, “Feds move to speed home ‘short sales,'” Ilyce Glink, Aug. 21, 2012