With so many Americans worrying about their underwater mortgage, it’s no wonder that there’s been an increased interest in short sales. However, with all of the mortgage debt relief options available, is a short sale truly the best idea? From mortgage modifications to loan modifications and credit negotiations, there are endless opportunities for homeowners to tackle their mortgage debt. While a short sale often benefits many people, the homeowner is not typically one of them. Let’s take a look at why.
Short Sales Considerations
For most homeowners, dealing with mortgage debt can be so scary that they get desperate. Instead of carefully weighing all their options, they make a last ditch effort involving a short sale that ends up making the financial situation worse. By understanding the potential negative results of short sales for homeowners, you’ll be better equipped to consider other mortgage debt solutions.
Short sale pitfalls include:
- Damaged credit. As opposed to popular belief, a short sale can damage your credit as much as a foreclosure or bankruptcy. What’s even worse is that the short sale does the damage without the fresh financial start that a bankruptcy provides.
- Tax complications. Because the amount made from a short sale can be considered income, you will likely have to pay taxes on it, even if you used the money to pay back mortgage debt. While there are some exceptions to this rule, chances are that you will receive a 1099-C tax form on the difference between your mortgage debt and what your lender received. Consult with your tax adviser for clarification.
- The debt is still yours. Lenders can release the lien so that you can sell the home, but the personal obligation for the mortgage debt is still yours. This means that despite the short sale, the debt isn’t forgiven!
Meeting with a foreclosure attorney will allow you to determine the best mortgage debt solution for your situation. While a short sale isn’t the best mortgage debt solution, it can be extremely effective for specific situations. They is knowing what you are risking and how to minimize those risks. In a short sale, the most important thing you need to do is ensure you are not held liable for the deficiency balance. In other words, the remaining portion of what is owed on your loan after the home is sold should be waived. An experienced foreclosure attorney can negotiate your release from this balance on your behalf.