Short Sale 102

My clients and friends often ask me questions concerning about Short Sale and Forclosure so I thought it is time to clear some of the concerns regarding Short Sale and Forclosure.

1. What is my exposure for a deficiency judgement?
In other words, “can the Lender sue me and get judgment to collect for losses not paid off in the Short Sale or Foreclosure?" My understanding is that on a short sale if the lender agrees to take the amount offered then the seller shouldn't have to pay the difference. The Foreclosure is the one where the bank can come after you for the difference. Please consult with your legal expert.

2. How will my credit be affected?
In general terms, credit wise it is always better to do a short sale than a foreclosure. A short sale results in the mortgage actually being paid off, which reflects positively compared to a forclosure. A completed foreclosure will do much more damage and lower your credit score tremendously. Fannie Mae Announcement 08-16 states that it can affect your credit for 2 years after a short sale and 5 years after a foreclosure.

3. What are the Tax Ramifications?
According to the IRS, if you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable. Fortunately, Mortgage Debt Relief Act of 2007 forgives home owners' debts who are short sale their PRIMARY residence. This Relief Act of 2007 applies to debt forgiven in calendar years 2007 through 2012 so you have plenty of time to take this tax relief advantage.

4. Do I need to miss a payment to start a Short Sale?
No, you do not need to miss a mortgage payment to start a Short Sale. You can work with a Broker to get a Short Sale Parkage and to list your house for sale.