The Differences Between
Auctions and Short Sales
Perhaps the easiest way to understand the difference between an "Auction" and a "Short Sale," is the involvement of a third party, or lender, in the process. Regardless of the type of auction, the seller can decide whether or not they can afford to sell their property at a given price.
With a short sale, the seller owes more than what the anticipated selling price is going to be. The lending institution has the final word in determining whether an offer is declined or accepted, as well as the commission rate if applicable.
Properties that are sold "short" of the mortgages owed on them, can be sold at auction or in a conventional format. In an auction setting, the high bid is taken contingent on lender approval, as lending institutions will not disclose prior to an offer what they are willing to accept. In a conventional format, an offer is presented to the seller's agent with the understanding the lender will have the final decision on an accepted selling price and commission rate to be paid if applicable.
Keep in mind, in an auction format, properties are sold to the highest bidder. The difference is auctioned properties require seller approval, whereas short sale properties require lender approval.
It is always recommended you seek the counsel of a professional tax advisor when buying or selling a property as there can be tax liabilities. Those selling via short sale should take note, as the lending institution not only approves the purchase price they are willing to accept, and any applicable commission rate, but they can either deny or forgive the balance of the loan not covered in the accepted purchase price. If the "short" or balance is forgiven, the seller may receive a 1099 form as it is considered "income" and taxes would have to be paid on the balance forgiven. If the balance or short is not forgiven, the seller would be responsible for paying off the balance of the loan to the lender.
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