A Different Ending

Homeownership isn’t always a happily ever after story. There are times when owners can no longer meet their mortgage obligations. In this case, there are several options.

One is foreclosure. In this scenario, buyers have a grace period where they can stay in the home and try to make good on their outstanding debts. Eventually, if they are unable to reverse their current course, the bank or lender will evict the owner, reclaim the home and place it on the market for sale.

A second, lesser-known option is called a short sale. Here the lender agrees to take a loss on the home in exchange for recouping most of what is owed to them. In other words, if you owe $90,000 on your mortgage, your bank may agree to take $80,000 and consider the debt paid. The benefit for the lender is that the case is expedited and closed without the added expense of a foreclosure proceeding. Of course the seller would not see any profit from the sale.
If you find yourself in such a position, research the short sale option further. Start by using online resources to learn about the agreement. If you think it is feasible for you, consult with your lender and a real estate attorney who is familiar with this arrangement

Also, it is very important that you understand the tax implications in a short sale. While the lender may be willing to accept less than what it is due, the government will consider the debt forgiveness as income and a taxable gain. Speak with a certified public accountant that is well-versed in this area.
When you closed on your home, you surely did not envision yourself in this situation. Unforeseen circumstances, such as a job loss, can put you in a position you never imagined. It is imperative that you look at all options, including bankruptcy, foreclosure and the short sale before you select the one that will work best for you.