Short Sale

Reminder: Short Sale should be a last resort after loan modification has been attempted!

A short sale is when a bank will accept the sale of your property for less than the outstanding mortgage. Some banks are doing this to avoid handling a lot of the real estate transaction costs themselves while others just won’t allow it. Be very leery of performing a short sale. First of all, this will destroy your credit. Try everything in your power to get your loan modified before you enter into a short sale agreement. On top of your credit being hurt, you might be 1099’d for the difference. This means if you short sell your property for $250,000 but still owe the bank $350,000 they will hit you with a tax bill of $100,000 of untaxed income. That is more than most people make in a year. While issuing 1099’s was ruled against for primary residences, some banks still issue it and make the borrower to sort it out with the IRS. Not an entity that you want to be fighting with. Avoid a short sale and look into loan modification, especially since our analysis is FREE. If you want to keep you home and you qualify for a short sale, chances are very good that you will also qualify for a loan modification.

The IRS says there is no free lunch. If you transfer title on your home, whether voluntarily through a warranty deed or grant deed, or involuntarily through foreclosure, you have sold your home. You might be subject to taxes, even if you sold your home at a loss, either on a short sale or by foreclosure.

It doesn't seem fair. What's worse is you might not even find out that you owe taxes until the day you open your mail to find a 1099.