Mortgage Short Sale
What is a mortgage short sale in Kansas City? Isn’t that what happens when you come up short on a mortgage payment? Perhaps it is selling your house with only a short time left on your mortgage. Actually, a Mortgage short sale occurs at the sale of property by a financially distressed borrower for less than the outstanding mortgage balance. The lender accepts the proceeds of the house sale and which is short of the full repayment of the mortgage. The borrower is released from the mortgage obligation. The lender does this in order to avoid what would amount to larger losses for the lender if it were to foreclose on the mortgage.
NOLO says saving your credit score may be the most touted reason for a mortgage short sale of your home rather than letting it be sold at a foreclosure sale, however according to myFICO, short sales, foreclosures, and deeds-in-lieu of foreclosure are all “not paid as agreed” accounts and are considered the same for purposes of your FICO score.
Short Sales Don’t Always Cancel the Remaining Debt on the Mortgage
When a lender approves a mortgage short sale, what is the lender agreeing to do? At the very least, the lender is agreeing to remove or release the lien on the property. A seller would have a near impossible task in selling a property without this lien release.
Is the lender also agreeing to cancel the seller’s obligation to repay the loan in full? Not necessarily
Suppose you sell your house that has $200,000 in debt and you sell the house for $150.000. That leaves a $50,000 deficiency. Some lenders ask sellers to sign new, unsecured promissory notes before approving the short sale. Other lenders, without asking for new promissory notes, reserve their right to collect the deficiency — the remaining balance of the debt.
In Missouri and Kansas, the lender can come after you for a deficiency.
You May Owe Taxes on the Deficiency
If your lender forgives you for a deficiency after a mortgage short sale, you may owe taxes on the forgiven amount. That’s because it’s considered income by the IRS, upon which you may owe federal and state income tax. Under the federal Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude from your income all or a portion of the amount of forgiven debt in a short sale.
Hire an Attorney to review all documents
Since short sales are complicated transactions, it is recommended that you hire an attorney to review the documents. The release of lien and protection from tax deficiency are very important to your financial welfare.
Terra Firma Property Solutions, LLC is a professional, full-service real estate solutions firm.
We buy and sell properties throughout the greater Kansas City area. We specialize in buying distressed homes, then renovating and reselling them to home buyers and landlords. Terra Firma Property Solutions is excited to be part of the economic rejuvenation of Kansas City and its surrounding areas.
Call us today at (816) 866.0566
