At some point, many homeowners come to the realization that they can't afford to stay in their home. Those who plan to give up their home, but want to avoid foreclosure (including the negative blemish it will cause on their credit report), consider a short sale.
A short sale allows you to sell or walk away from your home without incurring liability for a "deficiency."
The Short Sale
In many states, lenders can sue homeowners even after the house is foreclosed on or sold, to recover for any remaining deficiency. A deficiency occurs when the amount you owe on the home loan is more than the proceeds from the sale.
In a "short sale" you get permission from the lender to sell your house for an amount that will not cover your loan. A short sale is beneficial if you live in a state that allows lenders to sue for a deficiency -- but only if you get your lender to agree in writing to let you off the hook.
The benefit of a short sale is that you get out from under your mortgage without liability for the deficiency. You also avoid having a foreclosure or a bankruptcy on your credit report. Your credit won't suffer as much as it would were you to let the foreclosure proceed or file for bankruptcy.
The catch is that you need a real offer from a buyer before you can find out whether or not the lender will go along with it. In a market where sales are hard to come by, this can be frustrating because you won't know in advance what the lender is willing to settle for.
If you have additional mortgages, a line of credit or a home equity loan, those lenders must also agree to the short sale. If you are in this situation, you should know that it is often impossible considering that those lenders won't stand to gain anything from the short sale.
However, a short sale may generate a surprise: Taxable income based on the amount the sale proceeds are short of what you owe (again, called the "deficiency"). The IRS treats forgiven debt as taxable income, subject to regular income tax. The good news is that there are some exceptions for the years 2007 to 2009. To learn more, see "Income Tax Liability in Short Sales and Deeds in Lieu," below.
For all of your Real Estate needs
The Evelyn Bruder Team is here to assist you.
Evelyn Bruder, CRS, GRI, ABR, E-PRO, Las Cruces' Only Cyberstar
Visit our comprehensive one-stop website for all the Real Estate Information you are looking for. For more information on selling your home in Las Cruces visit our exclusive selling website.
Comments(6)