There are Disadvantages to a Short Sale
…but there are more negatives to a Foreclosure of a Home
Disadvantages to a Short Sale:
– It will negatively impact your credit for at least 2 years [Update: as of 2013 a FHA mortgage can be obtained after a year if the short sale hardship was reported correctly to the credit bureaus and you continued to pay on your mortgage through the short sale process].
– You may not be able to purchase a home for 1-3 years after a short sale has occurred.
– A promissory note from the lender for part of the loan amount not being forgiven may be asked of you. Or a contribution at closing.
– If the lender forgives and cancels the outstanding loan amount, the IRS will now decide that you need to treat that as income resulting in taxes to you. So meeting with your tax advisor is important. Mortgage Forgiveness Act ended December 2014 but please consult with your accountant or financial advisor to determine the financial impact to you. So if the lender forgave $50,000, for example, in a short sale that $50,000 will be treated as ‘income’ (you should receive a form 1099-C from the lender)for you in the year it was forgiven (it will be taxed at your current tax rate). I have heard that there is an ‘insolvency clause’ that could benefit you here but that is why an accountant is a must to do and advise you on your taxes if you had a short sale.
However, understand that you do have some control of the short sale terms when North Kingstown short sale agents negotiate with the lenders on the short sale for your home. Use Rhode Island real estate short sale agents that understand the process and have a legal team and negotiator working with them. It is very important to have a real estate agent that has success with short sale transactions, has done many of them, has an exclusive legal & short sale team with follow through. We are diligent and knowledgeable in getting the sale to the closing table for home sellers.
A foreclosure or deed in lieu does not wipe your financial slate clean. In fact, the recovery time to establish a good credit score will be longer for you. So doing a foreclosure or deed in lieu instead of a short sale is not one I have ever recommended to a homeowner. Your wages or social security can be garnished going forward, liens placed on other properties you own and the emotional load on you personally is not resolved. The Banks can come after you for years to attach wages or income if you do not settle the mortgage debt with them! BE AWARE of this with a foreclosure or deed in lieu. That is why the disadvantages of a short sale are not nearly as negative as a foreclosure. You want that ‘waiver of deficiency judgment’ against you in hand and locked up in a safe place.
I do believe the short sale is a better way for a seller to move on with their life both financially and personally then a foreclosure.
Ensure you have the representation you need and that the short sale is processed correctly so it does not lead to foreclosure or the bank coming back years hence looking for the shortfall money from you.
Ginny Lacey Gorman is a member of the group short sale superstars. We work hard for our clients in making the short sale happen successfully. Visit my RI Real Estate web site to read more about the short sale process. If you are under water on your mortgage, please call me to find out your options at 401-529-7849 or email me at ginny@RiHouseHunt.com and have a confidential discussion on your situation.
Disadvantages to a Short Sale are not as bad as you think.
Ginny Lacey Gorman is your go to North Kingstown Real Estate agent for real estate in North Kingstown RI and beyond…knowing the geographic area, schools, happenings, important tidbits of information and businesses well.
As a North Kingstown real estate and short sale agent, if you are having trouble paying your mortgage contact Ginny to help you through the short sale process successfully. Waterfront, oceanfront, luxury and coastal RI real estate are my specialty but all of RI is my backyard. When you are in need of a good professional for your buying and selling needs and an internet savvy agent who sells RI houses in this real estate market – call Ginny at 401.529.7849 or at ginny@RiHouseHunt.com.