What Effect Will A Short Sale Have on My Credit?
A short sale is considered a “settled debt” and can remain on your credit report for up to seven years. It can result in a lowered credit score of between 40 and 80 points and will have a negative effect on your credit. However, a short sale is considered preferable to foreclosure which is considered a “legal action” and can result in a credit score lowered by hundreds of points. Both remain on your credit report for up to 7 years.
How Long Does the Short Sale Process Take?
Once you submit a short sale package to the bank, it can take anywhere from 45 to 60 days for an initial bank response and another 30 to 60 days after that to actually close the transaction. Because buyers frequently drop out during the approval process, it is wise for the seller to continue accepting back up offers to purchase the home until a final contract has been approved and close of escrow date sets.
Can the Bank Pursue Me for the Forgiven Mortgage Debt?
It is advisable to discuss this issue with a real estate attorney as they can review the lender’s options with regard to your particular loan. It is important to note that the answer is yes, in some cases, the lender can pursue a judgment against you which is why it is advisable to get legal advice before attempting to sell your home through a short sale.
What are the Tax Consequences of Selling A Home through Short Sale?
Once your short sale has successfully closed, your lender will issue you a 1099 tax statement showing the amount of debt that has been forgiven. In some cases, the government will require you to pay taxes on this forgiven debt because technically it is considered income. The tax laws did change recently to forgive taxes for forgiven debt on primary residences sold through a short sale, but this forgiveness does not extend to second or investor properties. It is best to consult a tax attorney to determine your particular tax liability.
