Five Issues to Consider Before Selling Your Home via Short Sale

If you are having a difficult time paying your mortgage, you might be considering a short sale. A short sale involves selling the home with the proceeds being less than the mortgage due on the property. Often your lender will accept the sale proceeds, which will keep you from foreclosure. While short sales are a good choice for many, you must be certain it is the best choice for you and your circumstances. Here are five issues to consider when deciding whether or not to sell your home via short sale.

  1. A Short Sale May Not Cancel Any Remaining Debt on the Mortgage

Most people believe a lender will accept the proceeds of a short sale as payment in full. However, this isn’t always the case. When a house is sold via short sale, the lender agrees to release their lien on the home, which is required for the property to change ownership. When dealing with the remaining debt, some lenders will reserve their right to collect the remaining balance.

In order to determine whether or not you will be on the hook for the difference, ask your lender for their policies. If they are willing to accept the proceeds as payment in full, be sure to get that in writing.

  1. A Short Sale Will Still Hurt Your Credit

Many people believe a short sale is better for their credit than a foreclosure. However, a short sale is still recorded as a default, and therefore will be recorded as “not paid as agreed” on your credit report. One advantage is that a short sale is not recorded as a public record, unlike a foreclosure.

  1. You May Still Owe Taxes

Even if your lender is willing to forgive the difference between the mortgage and the proceeds, you may still be required to pay taxes on the forgiven amount. The forgiven amount is considered income and therefore is subject to federal and state income taxes. There are some exceptions to this rule, particularly ones relating to the Forgiveness Debt Relief Act of 2007. However, you should consult with a real estate attorney before the short sale to protect yourself from any unnecessary taxes or charges.

  1. Do You Have the Time?

A short sale is just like any other sale. You put your home on the market, and wait for someone to buy. The entire process can take months to close, and in some cases, that might not be enough time for your lender to prevent foreclosure. In order to determine whether a short sale is right for your situation, discuss your options with your lender. If they are aware you are attempting a short sale, they might be willing to halt the foreclosure process.

  1. You Still Have Options

Short sales and foreclosures are often not your only choices. If you have an income, you could possibly qualify for a federal program to restructure your mortgage, which would lower your payment and forgive a portion of your principal. Mortgage modification is an excellent option for someone who has income but has fallen behind in payments.

Losing your home is a stressful and often heartbreaking time. In order to make the best decision, you must consult with a real estate attorney. A lawyer will help determine which choices are best for you, and answer any questions you might have along the way.