Thinking about a Short Sale got you frustrated?

One common question that comes up quite often in discussing Short Sales with people who call me with questions is:

If my Mortgage is for $150,000 and the Short Sale is for $100,000, what happens to the $50,000??

Well… good question. Believe it or not if you structure the Short Sale properly, the answer is NOTHING.

You see a Short Sale is a Mortgage Lender’s way of releasing bad debt. If they are forced to foreclose on your property, it will cost far more and the Lender will get paid far less.

In a Short Sale, the Lender cancels the remainder debt… that’s the difference in the Short Sales purchase price and how much you owe.

So how do you structure the Short Sale properly?
By working with Professionals.

You would not have your attorney work on your car’s transmission, right? But an Attorney that specializes in Short Sales should always be called to help you navigate this complicated legal and financial issue.

Give me one good reason I should call an attorney?

Well… IRS Form 1099-C is one reason. What’s that? That’s the form the Lender will try to convince you that they HAVE to send you after the Short Sale is complete.

The IRS Form 1099-C is filed with your taxes. It is how the IRS and Lender account for all that money that you did not pay to the Lender. Yes… you’ll pay taxes on it!!

According to a Short Sale Attorney I work with (call or email me for a referral) … IRS INSTRUCTIONS specifically state that there is NO PENALTY to the Lender for not reporting the cancellation of debt. Again – consult your attorney!!

Need another reason? Deficiency Judgement. Sounds bad?? yeah… it is… this is when the Lender writes a new legal document charging you monthly on a new “loan” that will force you to repay them the difference.

An Attorney could keep both of these things from happening to you.

So where will the money go if you structure your “Short Sale” properly?

… if you are using a Realtor that understands the Short Sale process and an Attorney that can manage the legal aspects for you, then the money part is something the Lender will have to deal with at its shareholder meetings.

After your short sale, though… it will be important to discuss with a Mortgage and Credit Professional (like me!)how to get your credit back on track so down the road you can recover! Or else you may end up paying that extra money back over time with higher interest rates on all your financed purchases!

Questions? email me today david@themortgagegotoguy.com.

For more Short Sale information follow check out these posts:

• Short Sales do not always mean that the Realtor does not get paid!
• Short Sales – When you do NOT need one
• Short Sales and Bank Owned Properties
• All Short Sale Articles on TheMortgageGoToGuy.com

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David A. Podgursky, MBA
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