Facing Foreclosure? A short sell is your best option

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In today’s volatile economy and seemingly unstable real estate market, thousands of homeowners are faced with the stark realization that they can no longer afford to keep their mortgage payments current. It is important for home owners that are faced with losing their home to become educated on options outside of foreclosure and bankruptcy. If you qualify, a short sell is the best option for an individual facing foreclosure. 

What is a short sale?

A short sell is when a lender agrees to accept less than the total amount that the home owner owes. For example, if you bought a home for 250,000 dollars and can no longer afford the mortgage payments, the lender may allow you to sell the home for 150,000 dollars and forgive you the 100,000 difference.

 

Credit Consequences: Short Sale vs. Foreclosure

The credit consequences of a short sale and foreclosure vary a great deal. In general, a short sale will show up on your credit report as a “settlement”, “settlement for less than owed” or a “pre-foreclosure in redemption.” None of these marks is a good thing to have on your credit report; however, it’s possible to have these marks removed from your credit report within a few years. A short sale can drop your credit score between 80-100 points. There is also the possibility that through negotiation with the lender you can avoid having the short sale reported to a credit agency. On the other hand, a foreclosure on your credit report can take 7-10 years to remove and can cost your credit rating (FICO) between 200-300 points which is an devastating to your credit score. If you are faced with losing your home, it is imperative that you pursue a short sale aggressively and avoid foreclosure.

Why is a short sell a great option if you are facing foreclosure?

A short sale is the best option for someone facing imminent foreclosure for many reasons, including:

  • While a short sale will damage your credit score, it does not wreck havoc on your credit score like a foreclosure will.
  • A short sale’s impact on your credit score will only stay on your record for a few years, as opposed to 7 to 10 years with a foreclosure.
  • One of the biggest benefits to a “short sell” is that the seller can continue to live in the property while not making payments until the property sells.
  • If you short sale your home, you can qualify to purchase another home within a few years. This is not the case if you go into foreclosure.

 

Hiring a REALTOR® that is knowledgeable and experienced in short sales is crucial

 

Paige Slyman has extensive experience in guiding sellers in the short sale process. He is an industry leader in terms of knowledge in real estate legal and accounting trends regarding short sales. His real estate know how allows him to guide his clients through the short sale process and ensure that sale goes smoothly. Clients can be assured that all while working with Paige, they are protected as much as they can be under current real estate laws and accounting regulations.

 

Mortgage debt relief act 2011 and 2007

Creditors are required to file a  Form 1099-C whenever it forgives or cancels a loan balance greater than $600, under federal law. This could possibly create a tax liability for a person doing a short sale because the canceled debt is considered “income” for tax purposes.

 

However, sellers completing a short sale will be pleased to know that “The Mortgage Forgiveness Debt Relief Act of 2007” provides tax relief for some mortgage loans forgiven in 2007 through 2012. The act allows home owners going through a short sale to exclude income from the discharge of debt on their principal residence. The amount of debt forgiven must be reported on Form 982 and this form must be attached to the seller’s tax return.

In closing, if you are faced with losing your home, it is crucial that you research all of your options and contact an experienced and knowledgeable REALTOR®. Paige Slyman is an expert in assisting clients with minimizing the financial impact of losing a home and giving his clients the tools to rebuild their lives.   

Give us a call at 770.405.0100 x 222 or email us at slymanfamily@comcast.net.