In a recent article about short sales and bankrutpcy, Oregon bankruptcy attorney Kent Anderson suggests that moving forward with a short sale of a home may not be the best course of action for a debtor, and I would have to agree.
Anderson points out that three reasons for not going forward with a short sale are (1) that a short sale that does not pay all debt against the property, may leave a balance due that can be collected on by the creditor, (2) a short sale can result in debt cancellation income that is reported on on the homeowner’s tax return, and (3) a short sale resolves no issues other than the ownership of the home. The government did give relief over the last couple of years and forgave the written off debt so debtors did not have to report the forgiven debt as income but as of 2014 this government exception has not been renewed and debtor are not liable for paying taxes on this forgiven debt.
Therefore, if you have other debts that you are looking to discharge, filing bankruptcy may be your best course of action as debtors do not have to pay taxes on any debts that are discharged in a bankruptcy, including those debts associated with short selling your home. If you don’t move forward with a bankruptcy or a short sale, another option may be to attempt to negotiate a deed in lieu (DIL) with your lender. In a DIL your lender will agree to take control of you home in exchange for your keys. This avoid the cost on their end of doing a foreclosure and allows you to get out from the home you no longer want. Again, however there may be tax implications that you should discuss with your accountant.
If you have additional questions please contact Symmes Law Group at 206-682-7975 to schedule your free consultation.