If you are having trouble paying your mortgage and are in over your head with other debts, it may be time to consider a short sale of your home. Over the last several years, we have seen an increase in short sales throughout the nation, and in particular Oklahoma. While the housing market and economy are turning around, this is still a viable option for many people who cannot stay on top of their mortgage payments. Perhaps surprisingly, many people who short sell their home are actually able to buy another home soon after. This is oftentimes the case because a short sale gives people the opportunity to get back on their feet and start over, essentially. However, short selling your home is not an easy decision for anyone. It will likely affect your credit and potentially prevent you from getting another loan for quite some time. Because of this, it is important to sit down with a financial advisor, realtor, and knowledgeable bankruptcy attorney to ensure this is the right move for you.
Before you decide to short sell your home, please take the following into consideration:
- A short sale won’t necessarily save your credit score. Many people think that short selling their home will help out their credit score, but this isn’t always the case. In fact, short selling your home isn’t much better than a foreclosure. The bottom line: Fixing your credit score shouldn’t be the determining factor when it comes to the short sale of your home.
- A short sale may not cancel the remaining debt on the mortgage. Another common misconception is that a short sale will mean you no longer have to pay the remaining amount on your mortgage. There are two parts to your mortgage – the first of which is an agreement between you and the lender that you will pay them back for the amount borrowed. The second part secures the loan and creates a lien on your property. So, if you break your promise to repay the loan, the lender will have the right to sell the home in order to get their money back. When a lender approves a short sale, it means that they are agreeing to remove the lien on the property, but not necessarily canceling the homeowner’s obligation to repay the loan in full. This is obviously a complicated process and you should be sure and discuss this point with both the lender and your bankruptcy attorney.
- You may owe takes on the deficiency. Even if your lender agrees to let you short sell your home, you may still have to pay taxes on the forgiven amount. This is the case because it is still considered income by the IRS, upon which you may owe both federal and state income tax.
When considering a short sale, keep in mind the above and be sure and discuss your particular situation with your lender, attorney, and financial advisor. Short sales can take a long time, usually months, to close. Because of this, it is important you give yourself enough time and make sure this is the best option for you. To learn more about short sales and bankruptcy, please contact Atkins & Markoff today.