That's when the Realtor wisely suggests the home owner consider a Short Sale as an option to the homeowner to avoid foreclosure.
The gaining popularity of these types of sales was introduced in 2007 with the enactment of "The Mortgage Forgiveness Debt Relief Act" or HR3648
You can view the actual wording of this bill online via the Library of Congress website.
You can also view more about it via the IRS website.
In short, when home owners made any modifications on their loans that resulted in a loss to the bank or the home was foreclosed, the reality was that it would reflect as actual income to the home owner in the form of a 1099 making the home owner's tax liability quite a bit higher than what they actually earned from wages. The bill resolved that under many situations, this debt could be forgiven and the home owner/taxpayer would simply submit form 982 with their taxes to take advantage of this much needed bill.
So if "The Mortgage Forgiveness Debt Relief Act" forgives the debt whether the bank forecloses or the property is a Short Sale, why not just let the bank foreclose?
While a foreclosure and a short sale may in fact impact your credit score the same, the reality is that a Short Sale will almost always return a higher net to the the lender than a foreclosure (if you can get the bank to accept the Short Sale). This is important to mention because the home owner who does a Short Sale may be eligible to buy another home with an institutional loan backed by Fannie Mae or Freddie Mac much more quickly than a homeowner who allowed the bank to foreclose.
If you or anyone you know is thinking foreclosure is their only option, please make sure to contact us first. We have a great deal of experience in helping home owners avoid the stigma of foreclosures on their credit & they will never pay a commission or fee for our services.
Robert Regan, Realtor ®
R. K. Regan Team
214-586-7224 (Office) http://www.RKRegan.com
HUD Registered & Approved Agent