2007-09-26 13:27:05 · 6 answers · asked by Mary B 1 in Business & Finance ➔ Renting & Real Estate
A short sale is where a bank/lender (whomever holds the mortgage to your property) is willing to accept less than the amount of your mortgage so that you avoid foreclosure of the property AND the bank will not come after you for the deficiency. However, the difference between the amount owed on the mortgage and the amount of the sale is considered taxable income to YOU (or whoever was on the mortgage).
For example, your mortgage note is $500,000 but with the real estate prices dropping, you are only able to get $400,000 for the house (after deducting real estate commissions, etc.). If the bank is willing to accept the $400,000 and not come after you for the deficiency, you will owe taxes on $100,000. You'll get a 1099 form, showing $100,000 as income and then you will owe taxes on the $100,000.
2007-09-26 14:53:51 · answer #1 · answered by Princess Leia 7 · 0⤊ 0⤋
A short sale could work two ways:
The market value of homes has declined and you sale the home for less than you owe. If the lender agrees to let you sale for less than what you owe this is called a short sale. You would receive a 1099 for the amount you were short and you would have to pay taxes on this amount because it is considered income.
If your home is in foreclosure and the lender sales the home for less than owed this is also a short sale.
You are liable for the difference in either situation and can be sued and garnished for the deficiency balance. Either way a short sale will have a negative impact on your credit rating.
2007-09-26 15:50:48 · answer #2 · answered by yourmtgbanker 5 · 0⤊ 0⤋
Your current lender will agree to accept a lesser amount than what is owed on the mortgage.
For instance, you owe $200k on the house, which is now valued at $175k. The lender will allow you to sell the home for the current value, which gives them $25k less than what you owed.
But... don't think that you are now off the hook because you could be responsible for taxes on the shortage amount. This means that in this example, you would then become liable for the taxes on the $25k shortage that the lender suffered.
Basically, since you didn't pay that amount, it is now considered income - income that you have to claim on your income taxes. Make sure that you speak with a CPA to see what the tax implications might be.
Also, you should talk to a RE agent who could assist you with possibly negotiating a short sale with your lender, if that is the way that you are leaning towards. You will now need to prove WHY you are no longer qualified for this mortgage loan that you took out (i.e. lost job, etc.)
I hope this helps. Good luck!
2007-09-26 13:42:39 · answer #3 · answered by mtgproaz 1 · 1⤊ 0⤋
a short sale capacity that the loan financial corporation has agreed to allow the supplier to settle for below the full loan payoff quantity particularly than dealing with a foreclosure proceeding. This many times happens in markets the place genuine belongings expenses are declining. If there are incredibly that many, it is plausible that they are exaggerating the situation, yet extra possibly you're in a marketplace which has experienced a bubble.
2016-10-20 02:20:05 · answer #4 · answered by Anonymous · 0⤊ 0⤋
As I understand it , it is what used to be called deed in lieu of foreclosure .
The bank accepts that property back in exchange for whatever it's current market value is without having to go through lengthy foreclosure process .
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2007-09-26 13:31:39 · answer #5 · answered by kate 7 · 0⤊ 0⤋
a mtg company willing to accept a lesser amount than what is owed on the property
2007-09-26 13:29:50 · answer #6 · answered by blaqking45 3 · 0⤊ 0⤋