Credit Effect On Short Sale
I am in foreclosure, sale to happen Nov 2. My lender suggested a short sale. I am in talks with an investor who is calling my lender etc...today. Anything I should be aware of before signing anything and how do I make sure about the effect on my credit? Someone before had mentioned making sure it didn't adversly affect it. How do you make sure?
Thanks.
If you are serious about selling to avoid foreclosure sale (better move quickly) make certain that you are working with a reputable businessman/woman who has the knowledge and experience to effectuate a preforeclosure short sale... and the $$$ to close.
The last thing you want to do is place your trust in a goofball.
Understand clearly that in an ‘offer and compromise (short sale),’ your lender will assuredly send a 1099 to the IRS (so as to avoid responsibility for paying the income tax on your uncollected debt), and you will ordinarily then be taxed on that debt-relief as if it were a windfall profit. As of 1992, federal regulations assure that state and federal lenders have no option except for filing the 1099 or paying the tax on money they never received when accepting a short sale offer.
Also, be alert to the fact too that no matter what anyone tells you to the contrary, an offer and compromise will go on your credit record as an unsatisfied debt: paid as agreed. This is a negative entry (though marked as neutral) which makes it VERY difficult, if not completely impossible, to get another loan for quite a long period of time (6 to 8 years).
It’s only my opinion, but I personally feel that short-sales may be great for some buyers (with plenty of cash and credit), but not at all good for the seller in distress…especially when there are better options.
Why not consider leaving the existing loan in place and having an investor bring it current and make all the payments until the property sells and the loan is retired at some point in the future? There are hundreds of us out here who would take a deal like that (even when minimal equity is involved). Those who do those things can even preserve much of any hard-earned equity that you currently have (…to be paid in full to you in a few years when the property sells or is refinanced), while simultaneously restoring your credit with your lender. Some of us will even leave you in the property and reduce your payments while doing all of that, if you wish.
Bill Gatten