Beware of the Short Sale

short sale homeWith the precarious footing that the real estate and housing market has held for the past few years, short sales are becoming more and more common as an alternative┬áto bankruptcy and foreclosures. They might seem like a better idea when you’re in the middle of a financial hardship and you’re in danger of defaulting on your loans, but upon further inspection, there are many dangers lurking beneath the real estate short sale.

A short sale, by definition, is when your lender agrees to accept less than the total amount due on the house upon selling it. In a downtrodden real estate market, short sales typically get snatched up quickly by eager buyers looking to find a home for less than its market value. For the homeowner selling in a short sale, the reduced price will enable it to be sold more quickly than it would if it was listed for its market value.

However, when your lender accepts less than what is due on the loan in a short sale, also known as debt forgiveness or mortgage forgiveness, that isn’t always the end of the story. In some circumstances, the IRS may consider your debt relief as a source of income and may tax you on it. Furthermore, there is no guarantee that your lender will not end up pursuing the rest of what is owed on the loan after the short sale has been completed to recuperate the difference.

These potential pitfalls make short sales dangerous and if you are considering a short sale for your home either now or in the future, it’s important to look into these possible scenarios closely and carefully and examine all of your options before moving forward.

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