If you bought a home in the Colorado Springs area from 2004-2006 & are behind on your payments, you need to read this series!

Part 2 of the Short Sale Series covered the requirements for a short sale.  Now it's time to look at the pros and cons of a short sale in Colorado Springs and El Paso County.  By the time you finish reading this article, you'll have a good idea if Short Sale Services will be right for your situation.

Pros

• Avoid Foreclosure
  
  Foreclosure will be a very long and painful process.  It will take 6-12 months to take your home to auction, then another 6-18 months for the bank to sell your home.  The bank will likely then try to collect their losses from you (following you until it's paid off or satisfied.)  I'm not trying to paint a dark picture to scare anyone.  I just want to educate you on the entire foreclosure cycle. 
  
  
• Proactive Solution = More Control
  
  If you let the bank do everything, they'll certainly stack the deck in their favor.  Facing the problem head on gives you a little control of the process.  With a short sale you can be proactive and have a say in your financial situation, like finding a buyer for your home and negotiating for better terms with the bank.  This can mean the difference between a $40,000 bill after foreclosure and no bill at all. 
  
  
• Start Your New Life Faster
  
  By getting started early, you can minimize the damage to your finances and your family.  Not only that, but you get resolution on the entire process 12-18 months faster.  Translation:  You'll be eligible to buy another home 12-18 months faster (at the very least), not to mention getting on solid ground sooner with fewer long term debts.
  
  
• Potentially Owe Nothing After the Sale
  
  Perhaps the best reason to pursue a short sale is the chance of sharing your losses with the bank.  It's possible to sell the home for less than you owe and negotiate with the bank to forgive the difference.  Say you owe $250,000 and sell your home for $200,000.  Since the bank loaned you that money, you're still on the hook for $50,000.  During the process of a short sale you can ask the bank to cancel that debt altogether.  Does this happen often?  More so than you might think.  This is where professional help can really pay off.
  

The bottom line on benefits is that a short sale can be the fastest way to get out of a bad situation and potentially owe nothing when it's all said and done. 

Cons

• Still Damages Your Credit
  
  When you take a short sale on your home, it will be documented on your credit. While it won't have the same impact as a foreclosure for most creditors, Mortgage Lenders currently view a short sale in nearly the same light as a foreclosure. That means the chances of getting a home loan after doing a short sale are pretty slim (at least in the near future.)
  
  
• Possible Tax Consequences
  
  If the bank forgives your debt (meaing you don't owe them anything after the short sale), they will issue you a 1099 for the amount forgiven.  They send this form to the IRS, allowing the bank to write off the loss.  The IRS treats forgiven debt as taxable income.  That means you have to pay taxes on that amount (i.e. You owe $250,000 on your home, sell it for $200,000, the bank then issues a 1099 for $50,000 and now you have to pay taxes for $50,000 of "income.") 
  
  Is there a way around it?  Possibly.  If you can prove insolvency at the time of the sale to the IRS, then you are exempt from paying taxes.  Another alternative is the Mortgage Forgiveness Debt Relief Act of 2007.  If you used your mortgage(s) to buy, build or improve your home, then file a form 982 with your taxes & 1099.  No taxes are owed on the forgiven debt.  If you used your mortgage or Home Equity Line of Credit to buy a boat, take a vacation or pay off credit cards, then you're out of luck.  Most home owners, however, will benefit from the Act and pay no taxes.
  
  
• Bank Could Demand Payment for Their Loss
  
  The bank doesn't have to forgive your debt.  They can ask you to pay them back for the difference in the sale and what you still owe.  There's a catch to this, however.  You have to agree to it.  If the bank approves the short sale, but says you still owe them the remaining balance, you don't have to take the offer. 
  
  You have 2 options here.  Negotiate that provision out of the short sale (tell them "No, approve the short sale and forgive my debt completely.")  Or if they insist on that repayment, you can let it go to foreclosure (where they still might come after you for the balance.)  Once again, this is where it pays to have professional help.
  

Selling your home as a short sale in Colorado Springs and El Paso County is no free lunch.  There will be consequences.  It's important to know what they are before pursing a short sale. 

Finally, there are no guarantees in a short sale.  No guarantee that your home will sell before it goes to foreclosure.  No guarantee that the bank will approve a short sale if you have a willing buyer.  No guarantee that the bank will forgive your debt.  

That being said, if you want to have a little more control of your situation and minimize the downsides when facing foreclosure, then a short sale is one of your best options.

In the next part of the Short Sale Series, we'll look at the entire Short Sale Process, from start to finish, so you'll know exactly what to expect.  Read:  Short Sale Series:  Short Sales in Colorado Springs and El Paso County Part 4 - The Short Sale Process

Contact me if you'd like to know more about the Colorado Springs short sale process or want to list your home as a short sale.

Read also:

Short Sales in Colorado Springs and El Paso County Part 1 - What is a Short Sale?

Short Sales in Colorado Springs and El Paso County Part 2 - Do You Qualify?

Jamie Mades, REALTOR
Keller Williams Clients Choice
Office: (719) 535-0355
Direct: (719) 322-4645

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Jamie specializes in Colorado Springs homes for sale, Colorado Springs Military Relocation, and Colorado Springs Short Sale Services.

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