Okay, here is an issue that walks into my office all the time – short sales. Yes, in theory these sound like great ideas. However, they need to be looked at closely and researched.
Basically this is a sale of real property in which the proceeds from the sale are less than the balance of the mortgage and the bank accepts this amount as payment in full of the loan. Some believe this is the answer to all your real estate woes but there are some things you need to be aware of.
- First, the bank must agree to the short sale price, which it does not have to do.
- Second, you must find a patient buyer willing to participate in a short sale.
- Third, it takes on average 6 months to complete a short sale, which is why it is sometimes difficult to find a buyer.
- Fourth, you could receive a 1099 for the difference between the sales price and the amount you owed on the loan. If you receive a 1099 for the “deficiency” then you will have to pay tax
- Fifth, a short sale will impact your credit, significantly.
es on that income. It is not a guarantee that the bank will issue you a 1099; however, it is a risk.
If you cannot afford to keep the home and either live in it or rent it out, another option that may fit your situation is a bankruptcy. If you surrender a home in a bankruptcy will not incur taxes on any deficiency.
I recommend that you contact a bankruptcy attorney to discuss your options before you enter into a contract with an agent. Most bankruptcy attorneys understand the short sale process and the benefits and risks. They can help answer your questions and guide you down the most beneficial path for you.
Just something to think about.