Re: Short Sale a house with up-to-date payment
11-11-2012 03:37 PM
My wife and I just sold our house about a month ago (we moved out 2 years ago). We were going to do a short sale, because at the time, the market setting for our house and our income was just too far apart. From the research that we did, talking to realtors and banks alike, if you do a short sale. 1. It takes a long time even if the payments are up to date. 2. It will affect your credit. Not as much as foreclosing but, it will hurt it. 3. You have to pay taxes on your losses, because the bank is "forgiving" the difference between the sales price and the actual price. In IRS speak, the bank is gifting you the difference in what you owe and what you sold the house for.
In the end we ended up not doing a short sale. We were in hardship for almost two years, then we came out. It still stings a bit making that monthly payment to cover our losses, but not as much as the monthly mortgage payment. It was so bad just getting a personal loan to cover the losses. The mortgage company Citimortgage wouldnt do out a loan and our credit score is 777!
I take issue with the statement above in red. If your home is a primary residence (not investment or rental type) then the Mortgage Debt Forgiveness act of 2007 waived those taxes for most short sales. You would need to search for the IRS publication dealing with it on their site to see it in writing. However, the deadline is coming up now, Dec 31, 2012. Unless the 2007 ruling is extended, then and only then, your statement will be correct for short sales that close after Jan 1 2013.