Thinking About a Short Sale? There are a Couple of Things You Need to Know…

There are so many people who are finding themselves in the situation of trying to sell their house for less than they owe on it before it gets foreclosed upon. It is an awful situation to be in. And the inclination may be just to let the bank take the hit on the Arizona real estate you are upside down in. Well before you do that there are some things you need to know.

Tax Consequences: Most sellers in a short sale situation think that they are safe because the IRS can’t count mortgage debt which is forgiven as income and therefore you won’t have to pay taxes on it. But this does not count for cash out refinancing. Many people who are “upside down” in their homes right now are that way because they took cash out as a second mortgage. It also does not apply to second homes. This debt forgiveness is limited to the original purchase money on your primary home.

Secondary Debt: Just because the primary lender has given the OK for a short sale to occur, it doesn’t mean you are off the hook for any other debts that you have secured through your deed. The holders of second (or third, and so on...) deeds don’t have to forgive the debt, and will usually sell the balance to a collection agency. Other times they might settle for a lesser amount than was originally owed through loss mitigation. But you don’t just get off the hook.

So before you do enter into a short sale, know exactly what you are getting into. Many people who have found themselves in mortgage trouble have been able to find other alternatives. Check all of your options, and only then enter into a short sale. And if a short sale is the only option, know that your Realtor is probably not a loss mitigation expert and he or she can not give you tax advice.