Are There Tax Implications On A Short Sale?
Do I Have To Pay Taxes On A Short Sale?
Many people wonder if they have to pay taxes on the amount of debt forgiven on a short sale. The simple answer to the question is Possibly. Typically, the lender will issue a 1099-C which outlines the amount of debt forgiven during the short sale process. Depending on your personal situation, you may have to report this as income on your tax return. There are certain situations where you will not have to report this forgiven debt as income from the short sale. For example, if you meet the IRS' definition on Insolvency, you would not have to report the forgiven debt as income.
It is important to note that you should discuss your situation with your CPA or tax adviser to find out if you need to report the deficiency as income when you file your taxes.
Please Contact Us today to answer any other questions regarding selling your home on a short sale.
How Much Does It Cost To Sell My Home On A Short Sale?
The Cost of A Short Sale:
I often get asked by a potential client exactly how much it costs to sell a home on a short sale. After all, there are typically all sorts of fees when you sell a home. A short sale is different. The goal of the short sale is to get the lender to agree that you don't have to bring any money to closing!
There are typically Title Fees, Proration of the taxes that are due to the county, recording fees, potentially seller paid closing costs that the buyer uses and real estate commissions. The good news is that we (The Twin Cities Short Sale Realtor) work with the lender to pay all of these fees. Approximately 95% of the time, your lender pays all the fees. The other 5% of the time, the lender may decide to not pay certain nominal title fees that don't add up to a lot. In any event, the fees that you may be responsible for are very low, of not $0.
Contact the Twin Cities Short Sale Realtor today to discuss your personal home selling situation.
Short Sale Vs. Foreclosure
Should You Choose A Short Sale Vs. A Foreclosure?
There are many considerations to take into account when considering selling your home on a short sale vs. letting your lender foreclose on your home. Although it might be easy to just let the lender foreclose, that may not be the best decision for you.
Benefits of a Short Sale:
- You get to sell the home and leave on your terms. This is probably the biggest peace of mind for most people when considering the short sale. Although you can predict when exactly you're expected to leave during a foreclosure, you will need to find alternative housing when it is actually time to leave. If you cannot find something in time while waiting to the last minute, you may end up in a bind.
- One of the purposes of the short sale is to get your lender to agree that the money they receive from closing satisfies your mortgage. IE: you don't want them to come after you for the balance. In Minnesota, a lender can either foreclose on you, or they can try to obtain a judgment against you for the deficiency balance, but not both. The main goal of the short sale is to get them to agree that they will not obtain a judgment against you. Of course if they do, they can legally pursue remedies to seize any assets that you have.
- You may feel better about knowing who is buying your home. After all, you made the house your home and you'd probably like to know that the next person is going to take care of it like you did.
- You're likely to see a shorter time frame until you can buy again. The short sale has a negative effect on your credit, the foreclosure will have a greater negative effect. You'll want to consult a lender for specific time frames and these rules and regulations are continuing to change.
- You're likely to see a smaller dent in your credit and that dent will most likely repair itself much quicker than if you allow the lender to foreclose.
- You will not have to say "yes" to any future mortgage application questions that ask if you've had a "foreclosure or deed-in-lieu in the past 7 years".
- You may be eligible for up to $3000 in moving expenses as part of HAFA.
Benefits To A Foreclosure:
- You may be able to live in the home for a longer period of time without paying the mortgage. During the short sale process, you will need to move out when the home sells, similar to a standard sale. In Minnesota, when you allow your lender to foreclose, you will have 6 months from the date of the sheriff's sale until you have to leave. If you don't move out by then, you can expect the sheriff to come knocking on your door, forcing you to leave.
- There may be a cash for keys offer extended to you by your lender to move out. In our experiences, a cash for keys offer may be as low as a couple hundred dollars, or as much as $2500. Lenders will typically offer cash for keys so they don't have to go through the expense and aggravation to evict you.
- You won't have to deal with any showings for prospective buyers during the foreclosure process.
As you can see, the benefits to a short sale almost always outweigh the benefits to a foreclosure. You'll want to weigh each option available to you so you make the correct decision that is right for your personal situation. Feel free to contact the Twin Cities Short Sale Realtor with any questions that you may have.
How Do I Qualify For A Short Sale?
Short Sale Qualifications:
One of the questions that I get asked all the time about a short sale by a homeowner is how do I qualify, or more generally, what are the qualifications for a short sale. I wish I could answer the question with a black or white answer, but the fact is that I cannot. Short Sale qualifications are different for everyone and it is ultimately the lender that will make the final decision if the home can be sold on a short sale or not.
There are several important considerations that should be reviewed when deciding if you think selling your home on a short sale is right for you. In my opinion, the most important consideration for a short sale is can you currently afford the home? If the answer is "yes", you will most likely have an uphill battle ahead of yourself to get the short sale approved by your lender. With that said, there are many variations to just a yes or no answer. Let's just assume that you've answered "yes" to my question regarding if you can afford the home or not.
- Do/did you have a job transfer?
- Is there something in your neighborhood that makes living in that home unsafe?
- Is there something with the home itself that makes it living there unsafe?
- Are you expecting a financial difficulty in the short timeframe ahead?
- Did a natural disaster occur?
- Are you going through a life change such as divorce or additions to your family?
If you answered "yes" to any of my questions above, then you may qualify for a short sale, even if you can afford the home. Your personal situation may dictate that a short sale could be the right option for you. Simply Contact Us and we can discuss your personal situation and can advise if you're a candidate for a selling your home on a short sale.
What about if you answered "no" to my question above? Quite simply put, you are probably going to be a candidate to sell your home on a short sale.
- You may be behind on your payments.
- Your home may be in foreclosure.
- Your home may be schedule for auction (the sheriff's sale).
Additional signs like these point to the fact that you'd most likely qualify for a short sale.
Generally spaking, many of the homes that are on the market for sale today are short sale homes. The Twin Cities Real Estate Market was booming through 2005 and into 2006. From there, we've had a nasty decline where property values have plumeted. You're not alone by selling your home on a short sale! Life changes happen to the best of us and when those life changes happen and you need to sell your home, but owe more than it's worth, the short sale is an avenue and an option that may be available to you.
Feel free to Contact Us at anytime to discuss if a short sale is right for you!