What are the financial consequences of a Short Sale?
Keep in mind that we are not accountants, tax preparers or financial counselors. However, we do this full time so we have a very good idea of what happens. The lenders have several choices when they incur a loss on your loan: 1) They can write off the debt and send you a 1099-c for the difference. The IRS views this as a benefit to you and therefore treated as taxable income. The Federal Government has put a hold on these “phantom taxes” until 2010 for certain situations. See the IRS websites: Mortgage Debt Relief Act of 2007 and Questions & Answers on Foreclosure and Debt Cancellation for more information on this. 2) They try to collect the difference from you after the sale is complete. Sometimes they’ll ask you to sign a promissory note, continue to make payments or they will sell your debt to a collection agency. It is rare for 1st mortgages and more common for 2nd mortgage lenders to do this but they almost always have the right. Always seek the advice of a local attorney about yo
