Two of the most important questions you can ask when you are involved in a short sale are whether you’ll have any tax liabilities and when you can get credit again. The inquiries about IRS consequences short sales can create should be presented to a financial professional like your CPA. It is possible that since a portion of the original debt is being forgiven that it may now count as income. This is something that should be discussed between you and your accountant.
As far as credit is concerned, your credit report after a short sale is concluded will only show the late payments leading into the arrangement and then show the mortgage as “paid in full.” There are certain types of credit you’ll be able to get immediately. FHA is currently giving out loans the next day after a short sale is completed for those who kept up their mortgage payments before the short sale negotiator sought to make an arrangement with the bank or mortgage lender.
If you are refused for a short sale arrangement, the foreclosure that follows will be listed on your credit report for ten years. You will not be able to get a loan or a new mortgage for at least five years. With a short sale, you can get most credit in eighteen to twenty-four months, basically a fresh start after just two short years. You’ll also be debt free from your previous mortgage, minus any tax liability you may incur.
Seeking the advice of a professional is recommended in each of these aspects of a short sale. A short sale expert realtor can negotiate the actual deal for you but you’ll need to talk to an accountant or even an attorney to make sure that you understand your tax liabilities and the impact on your credit that a short sale will create. It’s a good option if you owe more on a property than you can afford to pay or that it is worth. Just make sure you know what you’re getting yourself into and what the consequences and benefits of your actions are.
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