Are you under water on your home mortgage? Are you considering a short sale to get out from under the mortgage? A short sale can be an effective way to relieve yourself of debt and get out of an underwater mortgage. When you short sell your home, you agree to sell it for less than the remaining balance on your mortgage. You usually need your lender's approval and cooperation to do this, since it's likely that they won't get repaid on the full outstanding balance. While a short sale may be right for you, it's not a simple process. If not handled correctly, you could walk away from the short sale owing a substantial amount of money out-of-pocket. Here are a few tips to maximize your benefit:
Get all agreements with your lender in writing. You'll likely have numerous conversations over the phone with your lender during the short sale process. Many of these conversations may be about the sales price and what will happen to the remaining balance. Many homeowners are surprised to learn that the lender may not forgive the remaining balance after the sale is complete. In fact, they may attempt to collect on it months or even years down the road.
Make sure you and the lender are in complete agreement about the remaining balance. Will it be forgiven? Will it be paid for pennies on the dollar? Can you set up a payment plan for your obligation? Whatever you agree upon, get it writing and then save that document in case you get any collection notices in the future.
Estimate your tax liability. Another surprise for many homeowners is that you can actually owe taxes for any forgiven debts as part of a short sale. If your lender forgives any of your balance, the government may view that forgiven debt as income to you. And that means you could owe income taxes on the forgiven debt. If you don't include this on your taxes, you could owe additional interest and penalties. Work with a short sale expert or a tax professional to estimate your tax liability for your forgiven debt.
Get a professional negotiator. When you ask your lender about a potential short sale, they're probably not going immediately offer to forgive your remaining balance. In fact, they may not offer anything. To get the most benefit out of the transaction, you'll need to negotiate any debt forgiveness. And that could be a very difficult negotiation. Remember, your lender has experience negotiating these deals on a daily basis. If you're not an experienced negotiator, you may find the process intimidating.
Instead, get help from someone who has experience handling these negotiations. A real estate attorney who handles short sales could consult with you on the entire process and negotiate on your behalf. Contact an attorney in your area for more information.