Answer:A short sale can be defined as a sale of property yielding an amount less than what is due on the balance of the note. Typically, this is due to a financial hardship that is experienced by the homeowner. After negotiating with the lender, the homeowner will usually sell the property and hand over the proceeds of the sale to the bank. This may or may not satisfy the obligation of the note, based on how the deal is structured. Short sales are often a solution homeowners will evaluate prior to going into foreclosure. In many cases, short sales are cheaper and less arduous than the foreclosure process.
Answer:There are no costs or fees! In most short sales, the buyer of your home or the mortgage lender would be responsible for paying all the fees associated with the short sale. As the seller or home owner you are not held responsible for paying commission fees, escrow fees, title insurance fees, termite repair fees, lender fees, miscellaneous fees or any other fee.
Answer: In many cases, in a short sale, the bank will forgive the difference between the sale price and what’s owed on the mortgage–known as the deficiency balance–but that decision is made on a case-by-case basis.
Answer: Tax implications are unique to each individual and their mortgage lender. However, a short sale represents a loss for the bank, which can be reported to the IRS as “debt forgiveness”. Therefore, it is very likely that both you and the IRS will receive a form 1099-C for the amount of the mortgage lender’s loss. Receiving this notification indicates that you are responsible for paying taxes on the debt forgiveness amount. Depending on the specific situation, there can be a substantial tax obligation after a short sale has occurred. If you have a specific tax question relating to a short sale, please consult with a qualified real estate attorney or certified public accountant.
Short Sales and Taxes – Possible Exemptions
After the short sale has occurred, the tax results of the disposition depend on whether the loan discharged is considered to be “recourse” or “non-recourse.” Generally speaking, some of the common exceptions would include:
• Classified as non-recourse debt
• Discharged debt as part of a bankruptcy
• The homeowner is insolvent
• Exclusion under “The Mortgage Debt Relief Act of 2007″
Enacted on December 20, 2007, “The Mortgage Debt Relief Act of 2007″ generally allows the exclusion of income realized as a result of modification to the terms of your mortgage or foreclosure on a person’s principal residence. The act applies to debt forgiven between the calendar years of 2007 through 2013.
Reasons to Short Sale:
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