When the mortgage balance is greater than its value, the owner can’t pay the difference and the lender agrees to accept less than what is owned, it is called a short sale. Commonly mortgages and homes in this situation are said to be "underwater"
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Both the federal tax change of 2007 eliminating tax on the unpaid difference and the 2009 Home Affordable Foreclosure Alternative Program (HAFTA) which gave incentives for short sales has helped with the stalemate of unpaid mortgages, especially in California where there are so many of these sales now.
The downside of short sales is that they often take longer than regular sales as the borrower must pass certain criteria (“hardship”
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