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A short sale in any city is a popular option for a homeowner who cannot make his or her mortgage payments and currently owes more on the home than it’s worth, as home values continue to decrease nationwide. A short sale in Los Angeles is a situation in where a homeowner sells his or her property for less money than the remaining balance on the loan.

Avoiding foreclosure saves the lender lots of money in the long run. In major cities facing foreclosure situations, a short sale is used to offset the legal proceedings. The Los Angeles foreclosure situation requires just that. The short sale always seems to work for all three parties involved in the transaction. The buyer is able to purchase the short sale home at a discounted price, while the seller is able to sell their “underwater” home (a home that has a higher outstanding loan balance than the market value of the property) and avoid foreclosure.

There are some standard procedures in carrying out a short sale in Los Angeles. Like other contracts, it has a contingency where the bank must approve the sale. If the bank convinces the seller to refinance the house, the bank doesn’t approve the short sale and the buyer gets their deposit back. In this situation the bank has tied up several months of the buyer’s time who must now start the buying process over again.

Historically, California has had one of the most active housing markets, and when the market is good, it is really, really good. When it’s bad, it’s pretty dreadful. People are taking advantage of the weak real estate market by buying short sale properties in Los Angeles.

Recent national housing crisis hit the city of Los Angeles hard. Many Los Angeles homeowners fell behind on their mortgage payments and wound up with an underwater home. There are mushrooming cases that add to Los Angeles foreclosure rates and these lowered other property values in the area. With the average number of short sales growing nationwide, more and more Los Angeles homeowners are considering a short sale of their property just to avoid foreclosure.

Even though the bank dismisses the debt and calls it even, before 2007, borrowers had to pay government income taxes on the debt they owed. This changed, however, when the government passed the Mortgage Debt Relief Act of 2007. An example for a short sale in Los Angeles starts with a borrower owing more to the bank than what they can sell the home for. The borrower works out a deal with the bank to sell the property for less than what they owe.

Under this program, borrowers do not have to pay taxes on short sales that occur from January 1, 2007 to December 31, 2009. In 2010, however, it is speculated that borrowers will have to pay taxes on the debt. Shorts sales on vacation or investment homes may also receive tax breaks.

A short sale does adversely affect a person’s credit report, though the negative impact is typically less than a foreclosure. Short sales are a type of settlement. Like all entries except for bankruptcy, short sales remain on a credit report for seven years. Depending upon other credit information it is typically possible to obtain another mortgage 1-3 years after a short sale.

It is shocking how many Los Angeles foreclosures are up for sale now. One only has to drive around a while to see all the Los Angeles short sales that are a sign of the bad housing market.