Short Sale or Preforeclosure
When a property owner fails to make their mortgage payments for a number of months they are in default. The first step of the foreclosure process (which typically takes a number of months) that the lender will take is to file the notice of default. This is a public document that is recorded. The property owner will contract to sell the home conditioned upon the lender accepting a lesser amount than what is owed on the mortgage. Note that there are no similarities between a real estate short sale and selling a stock short.
In many jurisdictions, including the United States, the seller is responsible for taxes on the amount of the mortgage left unpaid after the sale as ordinary income.
The Mortgage Forgiveness Debt Relief Act of 2007, enacted Dec 20, 2007, generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. The original effective date was through 2009 but in October 2008, legislation extended the relief through 2012. Use IRS form 982 to handle the debt relief provision.
Read more about this topic: Creative Real Estate Investing
Famous quotes containing the words short and/or sale:
“Never mind if you fall far short of the thing you want to do,—encourage your effort. If no one else will say it to you, say it to yourself. “Not so bad.” It will make the next effort easier and better.”
—Josephine Demott Robinson (1865–1948)
“I keep thinking that what I need
to do is buy my leg back.
Surely it is for sale somewhere,
poor broken tool, poor ornament.
It might be in a store somewhere beside a lady’s scarf.”
—Anne Sexton (1928–1974)