Short Sale Consequences

There has to be consequences, right? The government and credit agencies couldn’t just let you take a bath on your home and leave you be.

• Taxes – In the event that your lender agrees to the short sale, it’s a good possibility they may be able to issue a 1099 for the difference on your unpaid balance. The provision lies in a section about debt forgiveness. You will want to consult a real estate lawyer who can help you estimate the potential amount of taxes you may owe under this provision.

• Credit – A short sale will not appear on your credit report. However, the status of your loan will show up. If you are in default on your loan and you complete a short sale it would be considered a redeemed pre foreclosure. It’s often shown as ‘paid in full for less than agreed’. Creditors will know you completed a short sale and while you may not think its done a lot of damage to your rating, creditors ultimately make the final decision on whether to give you a loan, not your credit rating.