A short sale is the sale of real estate for less than what is owed on the property. Unfortunately, short sales have become common in today's real estate market, where real estate prices have dropped and many home owners are no longer able to pay their mortgages.
Short sales are often used as a tool to avoid foreclosure, which can be good for lenders and homeowners. Homeowners can not only avoid having a foreclosure on their credit history, but can also avoid having to endure the long foreclosure process. Lenders appreciate being able to avoid the legal costs of a foreclosure action. However, short sales require the home owner and the lender to consent to selling the property at a loss, which can sometimes result in impasse.
Prior to the current mortgage crisis, short sales were seldom used by homeowners because a short sale results in a deficiency balance obligation to the homeowner. Homeowners were exposed to being sued for the difference between the amount owed on the home and the short sale price, or, more commonly, were taxed by the IRS on the amount forgiven by the lender. In either case, the short sale produced another unmanageable debt for homeowners.
Luckily for homeowners, in 2007, the Mortgage Forgiveness Debt Relief Act was signed into law which excludes from income a discharge of debt on a principal residence. Debts forgiven by a lender in connection with a foreclosure, refinance, or short sale in calendar years 2007 through 2012 are eligible for this relief. This relief only applies to a principal residence; second homes, credit cards, and car loans are excluded.
If you are struggling with a home mortgage and are considering walking away, call Miller and Miller today to set an appointment with one of our attorneys and learn how the law can work for you. The attorneys at Miller and Miller can explain your options and help you to make the right decisions to get the fresh start you need.