Q: I read your article about how if a family can’t get a loan modification, they have to consider other options, like foreclosure. I am a Realtor. Like you mentioned in your article, the family must understand the foreclosure process in their state. But I hope they understand before just walking away from their home that foreclosure is not the answer.
A foreclosure can stay on your credit history for 10+ years, make finding future employment challenging, and potentially create IRS problems. A short sale is a better option.
A short sale will have less of an impact on your credit history. We can sell the property in “as is” condition, maintain your privacy and eliminate negotiations with the bank.
I suggest your reader contact a Realtor for help. Thank you for taking time to read my email.
A: You make some good points: A short sale will have a less negative effect on your credit history than a foreclosure. In addition, you’ll be able to buy another property sooner than if you have gone through foreclosure.
If you do a foreclosure or a short sale on your primary residence through 2013, the bank may send you a 1099, but the IRS will not treat the difference between what you owed on the property and what the bank ultimately receives as income.
But if you do a short sale or a foreclosure on a second home or an investment property, the difference will be treated as income and you will have to pay federal and state income tax at your marginal rate.
I’m sure most home owners would rather do a short sale than go through a foreclosure. But here’s the problem: To do a short sale, one needs two things, a buyer and a willing lender.
These are in short supply at the moment, especially with some lenders still taking months to respond to a short sale offer.