What Is a Short Sale?
A Short Sale occurs when real property is sold and the lender agrees to accept less than the amount owed on the mortgage and to release the lien that secures the debt. A Short Sale can often be used as an alternative to foreclosure. Contact me for more details.
Short Sales must be approved by the lender. Just because you owe more than your home may be worth doesn’t mean the transaction will qualify as a Short Sale. The Short Sale process is complex. You need advice from a knowledgeable real estate attorney. I can provide the guidance you need in navigating the often treacherous waters of Short Sales and Foreclosures. I can help you:
Determine if a Short Sale is a Realistic And Practical Approach for you:
- Understand the Short Sale process and the deadlines involved
- Negotiate with all parties including your lender, your lender’s attorney, your Buyer, your Buyer’s attorney, asset managers and others
- Prepare contracts
- Represent you in a foreclosure proceeding, if applicable
- Prepare the Short Sale package for the lender’s approval
- Prepare closing documents
- Attend the closing as your representative, disburse funds as appropriate, obtain and record necessary releases
Advantages of a Short Sale
A Short Sale does not require an auction sign in your front yard, court action or other negative consequences of a foreclosure process. Successful negotiation of a Short Sale can avoid the negative impact and public exposure associated with Foreclosure.
Even if you are behind in your mortgage payments and owe more than your house is worth, successful negotiation of a Short Sale can pay off your mortgage and allow any shortfall to be forgiven by your lender, frequently allowing you to avoid bankruptcy.
Discharge the balance of your mortgage debt:
In a Short Sale, your lender agrees to accept less than the full amount owed on your mortgage and to release you from your obligation to pay the balance, or the deficiency.
Less impact on your Credit Score:
A Short Sale generally has about 1/2 the negative impact on your credit scare as a foreclosure or bankruptcy proceeding.
Cancellation of Debt
If you borrow money and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender.
Here is a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.
Taxability of Cancellation of Debt Income
Cancellation of debt income is not always taxable. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
- Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
- Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.
- Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.
- Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or does not result in cancellation of debt income. However, it may result in other tax consequences.