Posts Tagged ‘short sale’
How does a short sale work?
Posted by: David Leon in Foreclosure, loan modifications on June 17th, 2009
Let’s assume Linus takes out a $50,000 mortgage to buy a house. After moving in, Linus realizes that he no longer afford the mortgage. Linus’s friend, Lola, would like to buy the house but she can only afford to pay $45,000.
The bank, not wishing to acquire another property via foreclosure, may agree to allow Linus to “sell short”. This means that Lola could pay the bank $45,000 purchase the home.
In this case, the bank would suffer a $5,000 loss. In most cases, Linus would have an income tax consequence of $5,000 for the bank’s forgiveness of debt.
What is a short sale?
Posted by: David Leon in Foreclosure, Real Estate Law, loan modifications on June 17th, 2009
A short sale is a sale of real property, in which the sales price is less than the mortgage on the property. For example, let’s suppose Dave has a house, but owes the mortgage company $100. The house is worth $60. In order to avoid a foreclosure, Dave can ask the bank to allow him to sell “short”, thereby allowing him to sell the house for $60 (or less), and walk away from the sale. The bank will forgive the remaining $40 balance of the note. In most instances, Dave will have a taxable income of $40 for the amount of the forgiven balance (called a 1099).
I want to abandon my property and walk away from the loan. What should I do?
Posted by: David Leon in Foreclosure, Real Estate Law, loan modifications on June 17th, 2009
You have a few common options.
1. You can do nothing. The bank will proceed with its foreclosure action and reclaim the property.
2. You can ask the bank to accept the property, and dispense with the foreclosure.
3. You can attempt to sell the property.
