Short Sale or Not Part 2:

Personal Considerations

In our first article of the series, we took a look at the different aspects of pursuing a short sale on your home as far as the lending institution was concerned. There is a bit more to your decision than the time and energy it takes to convince the institution to agree to a short sale; there are ramifications for the seller as well.

First, completing a short sale can take quite a long time, and it involves a lot of stress. It's not uncommon for a buyer and seller to wait two months and longer (the average seems to be three) waiting for the bank to agree to the short sale. During that time, of course, your financial situation could change, the potential buyer's could as well. In the interim, you are still making mortgage payments and those on other bills.

Next, remember that all the bank is agreeing to for sure is selling the house to the buyer at the proposed price. That does not mean that it is saying they don't forgive the seller the amount outstanding on the mortgage. You may be able to get rid of the balance of your mortgage, but many times a financial institution will stipulate that you still owe them the outstanding amount.

When you do get a lender willing to forgive you the entire debt (and numbers vary on this from 20-40%), you are not yet out of the woods as far as owing money. The next organization to coming knocking at your door (or calling on your phone) is likely to be the Internal Revenue Service. They are not your lender; they are not going to look at what you owe on the mortgage as what you owe them. Instead, they are going to want the taxes from the entire sale paid to them.

Moreover, they will not be willing to negotiate. You will have to pay the taxes on your home sale on time, or the amount will climb very quickly. So keep in mind that you are still going to owe taxes on the full amount of the sale of your property, even if it is a short sale.

Keeping in mind the time it takes to convince lenders of the necessity of a short sale, the fact that your entire debt may not be forgiven, and that you will still have to pay taxes on the full sale amount will help you decide if a short sale is a good idea or not. Weight that up against the possibility of foreclosure, and come to your decision.