Real Estate Short Sale
short sales
What is a short sale? To put it simply, a short sale transaction is a sale of a property in which the outstanding debt (in the form of mortgages – such as purchase loans, refinance loans, home-equity loans, or one of the various other types of loans secured by your property) was more than the price for which the property was sold. Example: 1st and 2nd mortgages totaled $470,000.00 and the property was sold for $325,000.00. The sale price was $145,000.00 “short” of the amount that the seller had originally borrowed – thus the term “short sale.” Since the banks/lenders were essentially paid back less than what you borrowed, you could be deemed to have received a debt “forgiveness” of $145,000.00. A sale of this type requires bank/lender approval.
While there are many reasons why a bank/lender would choose this manner of sale, the important question is: What should you (as the seller of the property) know about this type of sale? If you participate in this type of sale, please be aware that:
- In some instances, you may be sued by the lender/bank for the money that was “forgiven”.
- The amount you did not pay back, which is a form of “debt forgiveness”, may be taxed by tax agencies for the “forgiven” amount. In the example above, you may be taxed on $145,000.00. For Mortgage Forgiveness Debt Relief Act and Debt Cancellation tax information visit:
http://www.irs.gov/individuals/article/0,,id=179414,00.html
California short sales
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This is a good little primer on short sales. Here’s a post on my own blog that delves a little more deeply into the subject of short sales – stuff like what your chances are of being able to short sell and if there are any negative credit-rating implications associated with short selling.