Short Sales

Here is the scoop on short sales. A short sale is when you sell your house or the bank in a foreclosure action sells your home for less than you own on it. In the old days, (pre-2008), when this happened at the end of the year you got a pleasant (NOT!) surprise from your lender of a 1099 for the short sale amount. For example: You owed $200,000 on your mortgage and only for $150,000 for it. In the clear, NO! Under the old rules you would have to treat the $50,000 difference as income at the end of the year. YIKES! Under the new rules, that doesn't happen anymore. HOWEVER, this only applies to your PRINCIPLE RESIDENCE! People that walk away or are foreclosed on their investment property and end up with a short sale, THEY WILL GET STUCK PAYING TAX ON THAT MONEY! If you think the bank was tough, wait till you see what the IRS will do if you don't pay it.

The GOOD NEWS on this rule is that you don't get nailed with a double whammy of loosing your home and then a HUGE tax liability. The BAD NEWS is that many people who are not in danger of loosing their homes, are using this "help out" as an way to walk away from a home that has lost value in this market. Those people should be prosecuted. Why you ask? Well when they dump their homes out of selfishness, they are hurting the values of the homes around them. There are whole straits of homes in Detroit that are just empty! Me think that we are creating a self fullfilling prophecy.

My advice to people is to stick it out and ride the wave.