Short sales might be the only way out for many. But taking that direction may haunt sellers for years (and dollars) to come.
First there is the obvious financial impact of a short sale. The waiting period to buy a new home is at least two to three years and also depends on the loan type. For instance, a new FHA loan can be applied for after two years as long as they were current on their other installments and the mortgage of the previously owned home.
But wait... don't most banks require you be delinquent before they even consider a short sale?? Therefore you need to plan on a minimum of three years after a short sale to even hope to assist them in purchasing another home.
But here's something that may be even more surprising. Despite the Mortgage Debt Relief Act of 2007 some may still owe IRS after all! There were a few exemptions to this act to include:
- homebuyers that took a cash out refinance and spent the money on something other than home repairs will most likely need to claim the amount of the short sale as if it were earned income.
- investment or second homes are still subject to the tax liability.
- multi-million dollar homes are also not covered by the Mortgage Debt Relief Act.
Interesting how this information is suddenly coming to light now that we're deep into tax season, isn't it???
NOTE: always contact your accountant or CPA for issues requiring tax advice.