Short Sale Pros & Cons

• No Foreclosure – Foreclosures can be a very hard and stressful process for a family.  It can take anywhere from six to twelve months for a foreclosure to complete.

• Being proactive – Facing foreclosure head on will help give you some control over the process.  By choosing a short sale, finding a buyer and negotiating terms with the bank, the huge effect on your credit score by a foreclosure can be dodged.

• Start Newer, Faster – Minimizing damage to your credit score can help you and your family get back on your feet faster.  You’ll be eligible to purchase another house faster than if you entered foreclosure.

• May not owe anything after the Short Sale – You can try asking the bank to cancel your debt altogether.  It does happen, but not all the time.

• There is still damage to your credit – When a short sale is done on your home, it is still documented on your credit but won’t have the same impact as a foreclosure for most creditors.  Although lenders will view a short sale somewhat similar to a foreclosure.  The chances of getting a home loan will be slim during the ‘wait period’.

• Tax Consequences – there may be tax consequences if the bank forgives the debt and will issue a 1099 for the amount of debt forgiven.  This form is sent to the IRS to allow the bank to write off the loss.  The IRS treats the forgiven debt as a taxable income which means you will need to pay taxes on the amount owed.  Although due to the Mortgage Forgiveness Debt Relief Act of 2007, no taxes are owed on the forgiven debt.

• Bank Could Demand Payment for their Loss – The bank doesn’t have to forgive the debt.  They are able to ask you pay them back for the difference on the sale and what is owed, but you’ll need to agree to this.  There are 2 options.  You could negotiate the provision out of the short sale or if they insist on the repayment, you could let it go into foreclosure.  It’s best to consult professional help regarding your specific situation.