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A "short sale" is when a lender agrees to let
real estate be sold for less than the total owed. The lender gets a little
cash and avoids further headaches. It's a big business in Southern Nevada;
real estate buyers seeking cheap deals have been likened to vultures searching
out new carcasses to feast on.
Why would a lender agree to a short sale? Sometimes they can make more money
through a short sale than going through the foreclosure process, since losses
from bad loans are expensive. And in today's real estate market, many properties
just can't be sold for the full amount owed against them.
Short sales may look like a last resort to keep everyone relatively happy,
but be warned: They're NOT win-win situations for everyone — particularly
you as a property owner.
You may think that a short sale is good because you've kept a foreclosure off
your record and spared your credit. But you've been sold a lie. In some instances,
you STILL OWE the lender the balance on your original loan! And that even though
the property has been sold, the lender can still sue you to collect the balance
you owe! This debt can cripple your credit score.
The realtor may say that they have gotten the lender to agree to "forgive" the
debt, but this is just cold comfort from your perspective. All it means is
that the lender takes a tax deduction and hands you a horrible tax consequence.
In other words, you may be on the hook for paying the taxes — anywhere
from 15 to 30 percent — on the debt that was "forgiven." This
may lead to an IRS audit, interest and penalties and an even bigger tax debt.
It sounds unreal, but it's true. Perhaps worst of all, taxes are usually NOT
eligible to be eliminated through bankruptcy. (If you really want to scare
yourself, further information on this issue is available on the IRS web site
at http://www.irs.gov/individuals/article/0,,id=179414,00.html )
There is a glimmer of hope, however. Federal law does allow some taxpayers
to avoid the tax penalties of debt forgiveness, and a prompt filing of bankruptcy
can certainly work in your favor.
This is where we can help.
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