Short Sale Questions Your Real Estate Agent Should Not Answer

The Mortgage Debt Forgiveness Act of 2007, which directly impacts your ability to short sale your home, is set to expire at the end of 2012. With this fast approaching deadline, it is likely that you are going to run out of some of the protections afforded to you by the act. One protection is the ability to avoid paying taxes due from forgiven mortgage debt if you meet certain conditions.
If you haven’t considered a short sale of your home, but are starting to investigate it as an option to you for stopping foreclosure you should understand the kinds of questions your real estate agent should not answer and defer to respective industry experts to guide you along the way.

Will I still owe on my mortgage after the short sale?

In short, if the real estate agent you are speaking to about doing a short sale on your home answers this question with anything other than: "you should talk to an experienced real estate attorney licensed in your particular state" you should immediately start looking for another real estate agent. Each state is different in how the deficiency liability is handled statutes change. So getting legal advice from a real estate agent is not a good idea if you are looking for a reliable and clear answer to your question.

Will I owe taxes after the short sale?

Ummm, you can read the answer to the first question, but insert – qualified CPA, tax professional, or tax attorney and you’ll have the answer to this question. Many factors go into whether or not you will owe the gain that you got in the forgiven mortgage from your mortgage company. (the forgiven mortgage balance is considered income to the homeowner and this is where the tax liability can come from) There are many factors that go into whether you’ll owe taxes or not, and the real estate agent may or may not know all of the proper questions to ask you in order for them to render a proper answer to you.

SIDENOTE: You may not know to ask this question, but you will most likely receive a 1099 from your mortgage company for the money that they forgive you in the short sale, or a foreclosure of your home. The 1099 is the official IRS document that declares the money they forgave to you on your mortgage as income to you. You may owe taxes on this income. However, under the Mortgage Debt Forgiveness Act of 2007 you may be exempt from paying taxes on this money – to see if you are exempt you will have to speak to a tax professional.

SIDENOTE #2: You may also be subject to what is called a deficiency suit by your lender. You will want to get clarification from a real estate attorney about this potential situation. Your lender has a statute of limitations (a period of time) where they can pursue you legally to pay for the balance on your mortgage that they forgave. Ugly as it sounds – you need to know about this if you are considering a short sale or a foreclosure so you can potentially negotiate away the lender’s ability to file a deficiency suit later on after the short sale.

Is there such thing as a short sale expert?

If you think about it, expert means "knows everything." Just because your real estate agent says they are an expert don’t let that impact your decision to work with them on your short selling your home. You will want to make sure you ask for references to see how many short sales they have actually participated in and successfully negotiated. They should not hold themselves out as an expert and render all kinds of opinions about what you can or can’t do. Actually, the more expert they are the more they should refer you to industry professionals who can talk to you about taxes and legal standing.

As of August 2010, we are not even close to being out of the national housing crisis in the US. More and more homeowners are facing mortgage problems and need professional help to guide them along the way. If you want to seek the help and free consultation from a qualified loan modification attorney please complete the form below.