Possible Consequences Of A Short Sale
What Is A Short Sale? A short sale is when a bank agrees to accept less than what is owed on a property.
Are There Any Consequences? Yes. If not, everyone would be pursuing short sales. Here are a few potential consequences. There may be more depending on the situation…
1. Your Credit Will Be Damaged. The question of how bad will remain to be un-answered and can depend on how it is reported to the credit bureaus by the lender, how long the short sale takes, and how the credit regulations change over time.
2. The Bank Could Reject Your Short Sale. The bank is not obligated to accept your short sale. There are a variety of reasons they could choose to deny your offer. It is believed and has been my experience as a Realtor that many short sales are now being accepted compared to those being denied.
3. The Bank May Ask You For Re-Payment Of The Deficient Amount. As banks are loosing money on each short sale that is being processed it is not uncommon for them to request repayment of the full amount of what they are being shorted or a percentage of the amount. This can also happen with foreclosures so this is not a reason to dodge a short sale.
If a bank does not request repayment prior to or at the time of settlement they do legally have the option of pursuing that debt for a matter of time. I have been able to negotiate that debt down dramatically for my sellers with the last 3 banks I have worked with. This is called a deficiency judgement.
4. You May Have To Pay Taxes On The Deficient Amount. If the bank does not file a deficiency judgement against you for the settled amount you may be asked to pay taxes on the amount you shorted. Understand that uncle sam views the forgiven debt as free money (aka… un-taxed money).
If you are considering a short sale and how it may affect you, feel free to contact me. I have had success assisting other sellers through this process and would be happy to help your family also.
