Okay, you have done everything known to man to stop the pending foreclosure of your property.  Or, perhaps, your home has been on the market for months and no one is making an offer that’s even close to the current amount you owe on the property.  Consider the Short Sale.  But consider it carefully. It is not as easy as it sounds and there may be consequences. Severe consequences.

For those of you that may not know what a Short Sale is, basically it is selling your house for less than what is owed on it.  Sounds too good to be true? Well, it is and it isn’t. Like anything, look into it, completely and carefully. The last thing you want to do is make a bad situation worse. Unless you’re into that sort of thing. But for those of us that want as little drama in our lives as possible, then I would suggest that before you sign anything, that you look into every aspect of the infamous (cue dramatic music)…….Short Sale.

There are many..many….real estate agents that would be glad to take your money. They will tell you anything you want to hear just to get you to sign on the dotted line. So do your research first.

Talk to an attorney.   As with any legal matter, always talk to an attorney. I’m not talking about Uncle Billy from Idaho, I’m talking about a real attorney that specializes in, or is at least very familiar with, Short Sales. Legal matters are complex and need the finesse of a legal professional.  Real-Estate agents are NOT attorneys (in most cases anyway).  And many attorneys may call themselves “Short Sale Specialist”.   But what does that really mean? In most cases it means nothing. Research them first. Attorneys must report to the State Bar Association. So you can start there. How long have they been practicing? Do they have any complaints or disciplinary actions. You can go to and research any potential attorney that you desire. So, do the research!  Laws vary from state to state and a creditor may still be able to pursue you even after the short sale.  You may finally close escrow, and after many many months, finally be able to relax and forget about the hell you just went through, then suddenly you get a bill from the mortgage company attempting to collect the balance of the loan! Or just as bad, come tax season, the creditor sends you a 1099 Income form and now you have to report the balance as income on your tax returns!  Which brings me to the next bit of advice;

Talk to a tax professional.  Just as important as talking to an attorney over a legal matter, talk to a tax professional about potential tax ramifications of a short sale. What?  Tax liabilities? My real estate agent never mentioned tax liabilities! Well of course he didn’t. They don’t want to tell you the potential negatives of a short sale, they just want their commission.  But potential tax issues are a consideration when looking into a Short Sale.  A creditor that agrees to settle for less than what is owed, such as in the case of a Short Sale, may consider the balance of the debt as income and report it to the IRS via a 1099 form.  And depending on the balance of the loan, that reported amount could be huge! So before you turn your current situation into a potentially lethal tax situation, talk to a professional. Do the research!

Know your rights.  Just because a creditor comes after you for the deficiency (the difference between what you owe and what it was sold for) doesn’t mean you have to pay for it. You can negotiate with the creditor. The creditor understands the unlikelihood that they will collect the full balance of the loan. If you contact the creditor they are more than likely to accept any reasonable offer. And if they do not, then you may consider a Chapter 7 bankruptcy and discharge the liability. But before you jump right into bankruptcy, you may want to…

Talk to a Bankruptcy Attorney.  Enough said.  Moving on….

Stay current with the Association.    Your association is not concerned about the status of your mortgage. They are only concerned about their monthly dues. If you stop paying them, they will not magically go away. The fees will continue to accumulate and may actually kill your escrow. Someone must pay the almighty association, and a large pending association bill may keep potential buyers from your property.  Many real estate agents will actually shy away from a short sale where there are large back association dues.

Be Patient    The process of a short sale can be very lengthy. So be patient. “Keep Calm and Carry On” as they say.  In the worst case, the property forecloses and if the lenders come after you for any deficiency……….file bankruptcy.

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