Selling in a Short Sale? Sales Price Should Concern You Greatly.
Sometimes you hear someone in the real estate industry say something and your jaw may drop and hit the floor. I heard someone the other day say, "Why would a Seller try to get more than the bank is willing to accept?" There is one MAJOR reason I can think of.
Sellers are taxed on forgiven mortgage debt. The more that is forgiven the more they are taxed.
Let me repeat that, Sellers are taxed on forgiven mortgage debt. The more that is forgiven the more they are taxed.
Just because a bank is willing to accept a certain amount of loss, and your Seller doesn't have to bring any money to settlement, doesn't mean you stand there and dust your hands off and think you have done a wonderful thing. If you put your Seller at risk of a higher tax penalty because the bank was willing to accept it, though the market may have paid more, you have done your Seller a HUGE disservice.
This year I represented a Seller where foreclosure was looking like a better option for just this reason. Why? The amount buyers in the market wanted to offer way below list price. Lower than I advise she accept. And if she let the house go to foreclosure, the market would no doubt still be climbing while the bank prepared to put the home on the market. She may very well NOT have an amount of debt forgiven if the timing was right. Of course, during the several days of thinking this over, a Buyer who saw that even at the list price, this was a great deal in the neighborhood, wrote an offer and the bank accepted it. And my Seller's tax liability was lower than it would have been had she accepted a lower offer that the bank would have likely accepted.
If you are considering a Short Sale, and would like an agent that knows enough to realize that it isn't game over once the bank approves a Short Sale, give me a call.
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