Recently I was able to help sellers find a buyer through a short sale process. While they were current with their mortgage payments, and had excellent credit, their home was worth considerably less than what they owed. They needed to sell so elected to use a short sale, with a lot of concern about keeping their credit clean.
Here are the thoughts post-sale of the sellers about what they learned:
"1. The bank is not the IRS so they don't know how many bank accounts you have (credit reports also don't list who you bank with).
2. They will try to get as much money as possible in order for them to forgive the debt, but hold off until the end because they will come down on their request.
3. The bank requested only 3 months' prior statements.
4. The most important thing that most people don't know is that during a short sale the debt that is forgiven is taxable because it's considered income. But in 2007 The Mortgage Forgiveness Debt Relief Act and Debt Cancellation came into effect. This special relief act is in effect from 2007 to 2012. All you need to do is file Form 982 with your tax return. For more information on this go to IRS web site and pull up Publication 4681. The limit is $2 million of debt forgiveness for married couples and $1 million if married filling separately. Also this can only be done if it is your primary residence and not a secondary home or commercial property.
5. Based on pulling our credit scores after closing from the 3 main agencies (TransUnion, Experian, and Equifax), we don't think our credit was affected by this. The credit score seem OK."
I was pleased to represent these sellers in their transaction, so they could get out from under the loan, and move ahead with their lives. Call or email me if you feel your home is worth less than today's market, whether or not you are current on the loan payments. I have extensive short sale experience with both buyers and sellers.
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