Short Sales Are a Waste of Time and How to Avoid Foreclosure AND Short Sale

To make sure you will not find yourself liable to continue making mortgage payments following short sale, request information from your lender with a written answer so that you cover your bases. If the lender fails to offer you a straight answer, call one of our foreclosure attorneys to determine whether your state laws protect you from your lender coming after you for the mortgage deficiency. We can also help you determine whether your mortgage company has had serious issues complying with state laws with regards to this point of law. (Some large lenders have even been known to reinterpret mortgage law to put themselves in the best possible situation and ignoring the plights of homeowners.) If you are looking to stop a Dallas foreclosure, then consider hiring our law firm to stop the foreclosure for you.

You Could Be Required to Pay Taxes After Short Sale

If the lender charges off and forgives a deficiency balance following the short sale process, you could still owe IRS taxes for any amount which has been forgiven by your lender. This is true because the IRS considers forgiven debt to be income. The term known for this type of debt is phantom income, which means you might owe state and federal income tax. According to the FMF Debt Relief Act which was enacted in 2007, exclusions for this debt could enable you to avoid taxes if your income falls into certain brackets. All or a portion of IRS debt for this phantom income could be forgiven by the IRS as well after doing a bankruptcy, short sale, deed-in-lieu, or foreclosure. However, this only applies if each of these criteria apply in your situation:

  • The debt which was forgiven was for your home—whether that means it was for you to buy a home, build a home, refinance your home or more. It cannot income debt which will be precluded from taxes if the money was used for other purchases such as a cash out refinance.
  • The original debt has been forgiven between the years 2007 and 2015. (Congress has been considering additional bills, known as Tax Extenders [S. 1859], which would additionally extend for subsequent years 2016 and further.)
  • The debt discharge directly results to home value decline or deterioration of your own financial situation such as through job-loss, underemployment or serious medical issues or more.

Short Sales: More Pitfalls to Consider

If you are not sure whether you should do a short sale, please review the points below to consider additional aspects of how your situation would be affected by a short sale and whether it is the correct option in your situation.

First, You Need to Realize That You have Options Other than Short Sale. Short sales take an enormous amount of energy and a massive amount of time and you get no guarantee the bank will even close and allow you to sell the home in a short sale. Yet prior to embarking on the journey of a short sale (and it truly is a journey,) contact the lender regarding other alternatives to foreclosure, contact trusted friends or advisers, and consider contacting a credit expert, or attorneys such as foreclosure and/or bankruptcy attorneys to review your entire spectrum of options. Other options include refinancing the mortgage, getting the loan modified, negotiating new terms for a foreclosure prevention option through deed-in-lieu or more. Similar to completing a short sale, these options have their own drawbacks. They also have their own benefits which you can consider prior to proceeding.

Second, Consider Timing. Is it the 11th Hour, Do You Still Have Time? You will need to be sure that when you embark on a short sale journey that you have enough time for selling the home. Short sales require immense amounts of time, typically months, for you to get approved and closed. Do you still have the required amount of time which you will need to properly market, find your prospective buyer, as well as the time to negotiate approval from the lender before foreclosure goes through? Negotiations for short sale with the lender take time. Just the actual approval takes time and having this is not going to automatically halt the foreclosure process which the lender could be pursuing at the exact same time.

Have Questions About Where You Are In Foreclosure Process? FIND OUT NOW.

Call your lender as well as the attorney’s office or trustee who is managing your foreclosure regarding a postponement of a scheduled foreclosure so that you can have enough time for closing any deals or carrying out an option to keep your home or sell it fast. Short sales can last months as a process for the short sale close. If you are pursuing a short sale, you could close quickly, but you would be the exception and not the rule. Just like any regular sale of a home, short sale processes can be frustrating and take a while to close. And at the end of the process, you will need to be prepared to move. So if you seek to remain the longest possible time in the home, proceeding all the way to foreclosure could actually be the more suitable option for your situation. Additional options instead of short sale include a strategic default through Ch. 7 bankruptcy. In such a scenario, we could file a chapter 7 directly prior to the foreclosure auction which occurs on the first Tuesday of the month. By doing so, we rock the mortgage company back on their heels, buying you time, often 5-6 months after the scheduled foreclosure sale date.

You Must Get Approval From the Mortgage Company Prior to Closing a Short Sale. Does your home have a second mortgage? If so, they must approve. Has your lender covered you with insurance? If so, there are implications regarding the insurance. Do you have other creditors which have liens against your home from other debts or judgments? These must be satisfied or approved by other lien holders and this is not an easy process. You will likely require approval from each of the lien holders who have a financial interest in order to successfully close a short sale. That is bad news due to the fact that effort and time are needed for your to successfully close your short sale. These time and effort requirements also seem to ironically increase at an exponential rate each time there is another interested party. So if you have multiple interested parties, talk to them as early as possible during this process to come up with the best game plan forward.