There are Disadvantages to a Short Sale, as follows:
- It will negatively impact your credit for at least 3 years (sometimes more)
- You may not be able to purchase a home for a number of 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.
- If the lender forgives and cancels the outstanding loan amount, the IRS may 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 is in effect through December 2011 that should help you here.
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 short sale agents that understand the process and have a legal team and negotiator working with them- it is very important!
A foreclosure does not wipe your financial slate clean on the other hand especially if you had a higher credit score (720+) when you started the short sale process. In fact, the recovery time to establish a good credit score will be longer for you. So doing a foreclosure instead of a short sale is not one I have ever recommended to a homeowner. Your wages can be garnished going forward, liens placed on other properties you own and the emotional load on you personally is not resolved.
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 the representation you need and that the short sale is processed correctly so it does not lead to foreclosure.
Ginny Lacey Gorman is a member of short sale superstars. We work hard for our clients in making the short sale happen successfully. If you are under water on your mortgage, please call me to find out your options at 401-529-7849.
