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Short Sale Considerations
| | Monday, August 30, 2004 @ 08:01 AM EDT
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Contributed by: John Michael
John Michael Properties
Read more archived articles about Short Selling
Before you take on a short sale for your customer, it’s best to talk with a tax advisor about possible tax repercussions on behalf of your customer.
Most likely the IRS will consider the difference between the value at which your customer sells their home and the mortgage balance as “income” on which they will have to pay taxes on.
An exception to this rule is if your customer can prove that they are or were “insolvent" (that their debts are bigger than their assets) before
their mortgage lender agrees to a short sale of their property. A tax advisor will be able to tell them for sure whether they would be considered insolvent by IRS standards.
If they can’t prove insolvent, and the tax bill on a short sale would be more than they can pay, you may have to let the mortgage lender foreclose, or have your customer declare bankruptcy.
The lender will have to be convinced that your customer deserves to be approved for a short sale. You will have to tell the lender about your customer's financial hardships, including layoffs, divorce or medical issues.
If your customer has purchased luxury items, like fancy cars or jewelry. The lender will see these debts on your customers credit report and become convinced you’re customer is a loose spender who doesn’t deserve a break.
It may also be necessary to provide the lender documentation of your customer's financial hardship, such as pay stubs, bank statements and so forth.
Short sales take much longer to close than more conventional sales, so plan accordingly.
Note: John Michael is the author of many guides that can help you become more successful as an investor. See http://www.thecreativeinvestor.com/ChanPart-JohnMichael.html
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