Short-Selling Your Home as an Alternative to Bankruptcy


Home for saleIf you are struggling to meet your financial obligations, and your most significant debt is your mortgage, you may have considered selling your home and getting out from under that debt. But what if you are “under water” on the mortgage loan—what if the fair market value of your home (what you could sell it for in the market) is less than what you owe? Maybe you’ve considered a “short sale” of your home.

A short sale allows you to sell your home for less than the balance on the mortgage and simultaneously extinguish any obligation to pay the shortfall. With a short sale, you’ll be able to sell the house without any lien or encumbrances still on the property. It’s important to understand, though, that you don’t have an absolute right to short sell and wipe out the excess debt—you can only do so with the permission of the lender, and there are consequences.

If you are pondering whether to try to short sell your home, consider these advantages and disadvantages:

• The pros—After a short sale, you won’t have any financial responsibility tied to the property (other than the tax obligation discussed below). In addition, a short sale can have less of an impact on your credit rating than consistently late payments. You may even be eligible for another mortgage within two years, under Fannie Mae guidelines.
• The cons—The most significant disadvantage to a short sale is that you will be required to recognize the excess amount owed (the discharged amount) as ordinary income on your taxes. The lender will typically send you a 1099 for that amount. The short sale will also be reported to credit agencies.

Contact Heath, TX Bankruptcy Attorney Carrie Weir

I provide a free initial consultation to anyone with questions or concerns regarding a bankruptcy filing. Contact my office by e-mail or call me at 972-772-3083 for a private meeting. With offices in Rockwall, Texas, I represent clients in Heath, Greenville, Lavon, Wylie, Mesquite and Rowlett.

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Call Rockwall bankruptcy lawyer Carrie Weir at 972-772-3083 or fill out the contact from below for a free, confidential consultation to discuss your options.

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