Ask a Lawyer, David L. Leon, Attorney, Dallas, Texas (214) 696-0021 » short sale

How does a short sale work?

David Leon — Thu, 18 Jun 2009 02:28:07 +0000

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.

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31/05/2009 -- What parts of my loan can be changed with a mortgage modification? (0)
31/05/2009 -- What is a loan modification? (2)

What is a short sale?

David Leon — Thu, 18 Jun 2009 02:25:03 +0000

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).

17/06/2009 -- How does a short sale work? (0)
17/06/2009 -- I want to abandon my property and walk away from the loan. What should I do? (2)
01/01/2010 -- When can a judgment creditor take my home? (0)
01/01/2010 -- I have a judgment against me for a credit card debt. Can they take my house? (0)
25/12/2009 -- I am a co-signor on a real estate note. The primary borrower has abandoned the property. Can the bank come after me? (0)
27/06/2009 -- What should I watch out for when buying a foreclosure? (0)
17/06/2009 -- I want to give the property back to the bank and walk away from my mortgage. How do I do this? (0)
17/06/2009 -- What is a “deed in lieu”? (0)
31/05/2009 -- What parts of my loan can be changed with a mortgage modification? (0)
31/05/2009 -- What is a loan modification? (2)

I want to abandon my property and walk away from the loan. What should I do?

David Leon — Thu, 18 Jun 2009 02:16:35 +0000

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.

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17/06/2009 -- How does a short sale work? (0)
17/06/2009 -- What is a short sale? (0)
17/06/2009 -- I want to give the property back to the bank and walk away from my mortgage. How do I do this? (0)
17/06/2009 -- What is a “deed in lieu”? (0)
31/05/2009 -- What parts of my loan can be changed with a mortgage modification? (0)
31/05/2009 -- What is a loan modification? (2)
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