To Short Sell Or Not To Short Sell

by Hermin Dowe on August 21, 2012

To Short Sell or not to Short Sell

In the early days of the short sale craze, I would warn my clients that a short sale benefits two people, but actually, it benefits three parties: the bank, who does not have to take responsibility for the real property and may even get a write-off for the forgiven debt; the individual buying the property for much less than is owed on it; and the realtor coordinating the sale.

The poor sellers have now lost their home that they have lovingly maintained for a number of years. They have lost their deposit which may be substantial. And on top of all that, they are faced with a hefty tax bill!

In 2008, the federal government decided to do something about this inequity and passed the Forgiveness of Debt Act. What this meant for the homeowner is that they would not have to pay any taxes on the portion of the debt that the bank did not get paid on. Unfortunately, the Forgiveness of Debt Act expires at the end of 2012 with no indication that it will be renewed.

If this is the case, then we are back to the battle cry, “Homeowner beware!” There will be unscrupulous or honest but ill-informed realtors who will continue to push short sale as your best option, claiming that it will save your credit score but not mentioning the tax consequences.  If your house is underwater, you are unable to make your payments, and you feel your only way out is giving up the home, then you should call a bankruptcy attorney. You may be able to freely give up that home in a Chapter 7 bankruptcy with none of the attendant issues which are embodied in a short sale.

If you or someone you know is interested in finding answers to your financial problems then give us a call at 510 233-7700. The attorney and staff of the Dowe Law Firm will get you on the path to financial stability.

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