Sellers in Colorado Springs need to research the tax and economic consequences prior to making the decision of whether or not to short sale their home.
Until recently, homeowners who sold their home through the short sale process would be 1099ed for the difference. The homeowner used to be required to pay taxes to Uncle Sam since it was viewed by the IRS as income! The Mortgage Forgiveness Debt Relief Act of 2007 should help alleviate the tax problems related to debt forgiveness for homeowners in this situation.
Although sellers do not have to pay taxes on the mortgage deficiency to the IRS any longer, there are still other negative implications the seller must be aware of and therefore, seek the counsel of a professional attorney or accountant regarding their specific circumstance.
If the bank accepted the short sale, the lender does have six years to file a deficiency judgment. If you purchase another home down the road, the bank can put a lien on your home for the deficiency amount if done within the six year time frame. I personally have not heard of banks doing this to every single owner who sold their home via a short
sale but sellers need to be aware of this and seek legal counsel regarding their options and what measures can be taken to avoid this from happening.
In many instances, the bank will not entertain the idea of a short sale with homeowners unless they have missed three mortgage payments. Missing mortgage payments, foreclosure, and short sales can all negatively impact an individual’s credit. Some say a foreclosure is worse than a short sale when it comes to your credit report but I recommend speaking with a professional before you assume anything. Everyone’s situation is different which in turn, can create different outcomes and consequences for each individual.