With the onslaught of foreclosures currently in the pipe line, homeowners are pursuing many avenues in an attempt to limit the damage of a foreclosure that will be caused to their credit, their pocket books, and their lives. Even millionaires are strategically walking away from their homes.
These are all scenarios in which many homeowners are seeking to 'short sell' their homes to avoid a foreclosure sale:
There are, however, risks that need to be brought to your attention.
What is a 'short sale' anyway? A 'short sale' is when a homeowner sells their home for less than what is owed on the outstanding mortgage balances. In order to effectively and properly 'short sell' a home, the bank holding the mortgage rights must agree to accept an amount less than what is owed. The agreement by the bank to accept less than what is owed, however, is fraught with peril and uncertainty.
Typically, agreements entered into between banks and homeowners regarding short sales are often times silent as to the treatment of the deficiency balance that will exist after a short sale.
For example: if a homeowner owes $100,000 on their mortgage, but through a short sale agreement the bank is willing to accept only $80,000 from the short sale, then a deficiency balance of $20,000 owed to the bank will arise. Short sale agreements are typically silent to the treatment of the remaining deficiency balance.
There are usually two treatments of the deficiency balance banks have been employing.
In our example, the ex-homeowner will now be responsible to report on his current tax year's tax returns the amount of the forgiveness, $20,000 of gross income.
The only parties that usually win in a short sale scenario is the buyer, whom typically buys the home for less than market value, and the realtor, whom still gets paid their commission for the sale. The ex-homeowner is usually left with the resulting fall out; forgiveness of debt income or liability for the deficiency balance.
Many times a person can file a Bankruptcy to eliminate the forgiveness of debt income issue and/or any deficiency balance that may result after the sale, but they must file before the sale is completed. This avenue is often the best course for a person in this situation as the bankruptcy not only replaces the foreclosure notation on a person's credit report to one of a discharge status, but also eliminates the possibility of being sued for the deficiency balance. Our Baltimore bankruptcy lawyers can review your situation and advise you on how to manage your mortgage debt. From Chapter 7 to Chapter 13, we are dedicated to helping debtors find the right solution.
Find out more about bankruptcy, short sales, and how to confront your mortgage debt: (410) 234-0100.