A short sale is an option to foreclosure that many Americans are taking advantage of today as their mortgages adjust to outrageous rates that they simply cannot afford. The amounts of their payments go up and the value of their home goes down, leaving many homeowners upside down on properties they had high hopes for. To complicate matters further, unemployment is at an all-time high and many are finding themselves without the ways and means to make their mortgage payments.
A short sale is an option where you can go to the mortgage holding bank or lending institution and ask for clearance to sell your home for less than what you owe. The idea is to let the bank have whatever the sale brings in and hope that they forgive any remaining debt. The latter is not guaranteed but is a common outcome in the event of a short sale agreement. If you can negotiate with your bank to forego it, the short sale will benefit you. If not, you’ll still get most of your debt off your back but may owe a balance.
Eliminating the debt of paying on a home that you are losing money on is always a positive thing for your credit rating and financial status, but you may end up with IRS consequences on the short sale when the debt is forgiven. This is an issue that you should consult a real estate attorney or CPA about because it is not unheard of for the government to tax you on the forgiven portion of the debt. When you borrowed the money to buy your home you didn’t pay taxes on the income since it was money you’d be paying back. If the debt is discharged you may have a tax liability.
On a purely positive note, by going with a short sale option instead of a foreclosure you’ll be avoiding a hit on your credit report that would stay there for ten years. You’ll also be eligible for new credit within two years after the short sale is completed. If you have stayed current on your mortgage payments you can even get an FHA loan the day after the sale closes. If you’re weighing the pros and cons of a short sale the ability to get new credit right away has to count heavily in the pro category.
Find out today if you qualify for a short sale!
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