August 23, 2012 (Press-News.org) The short sale. Everyone has heard the term, but not everyone really understands it. Some people think it has to do with the time necessary to complete the sale process, assuming that a "short" sale only takes a short period of time.
In reality, though, short sales often take much longer to complete than traditional sales. The term short sale actually refers to the amount of money the bank or mortgage lender is willing to accept to allow the property to be transferred to a new owner. In layman's terms, the bank is willing to "short" themselves, taking less than the mortgage value in exchange for the deed to the property.
Short sales most often sought by homeowners who are deeply "underwater" (owing more on the mortgage than the house is currently worth) on their mortgage and hoping to avoid foreclosure.
While there may be benefits to a short sale, this debt management method should not be undertaken without professional advice, and it may not right for every homeowner with financial troubles. Those who can actually afford to pay the difference between the current market value of the home and the mortgaged amount should consider pursuing a traditional sale instead of a short sale.
The traditional sale route has less of a financial impact on the homeowner, and its tax consequences are clearly delineated. Short sales, however, can have nearly the same impact on a borrower's credit that a foreclosure does. Short sales also run the risk of tax consequences falling to the seller of the home.
The IRS treats the amount of the loan that is "forgiven" (the difference between the sale of the property and the mortgaged value) as taxable income. This means that an already struggling homeowner might end up with a big tax bill at the end of the year. There may be exceptions applicable that could allow a seller to bypass tax headaches, but those are not applicable to everyone.
A bankruptcy or tax attorney can be a great source of information about different debt management options and how they may affect your life. If you are thinking about a short sale or filing for bankruptcy, consider first obtaining advice from an experienced attorney or financial professional in your area.
Article provided by Charles E. Covey, Attorney At Law
Visit us at www.peoriabankruptcylaw.com
The Short Sale: Invaluable Tool to Help Avoid Foreclosure or a Financial Trap for Seller?
A short sale may be useful when you need to sell a house you can no longer afford, but you determine whether a short sale or a bankruptcy would make more financial sense.
2012-08-23
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[Press-News.org] The Short Sale: Invaluable Tool to Help Avoid Foreclosure or a Financial Trap for Seller?A short sale may be useful when you need to sell a house you can no longer afford, but you determine whether a short sale or a bankruptcy would make more financial sense.