Short sale worth it??

[avega]

Long story short, we are in a situation where we were unable to sell our house due to the market and our sale date is set for 1/24, less than 10 days!!! We are working with a realtor/investor to do a short sale, and I dont feel right about it. I hate to be in this situation, but I have to think about my kids and what is the best interest for our family... When we bought our house we had bought all stainless steel appliances and a washer and dryer, as well as some expensive custom blinds and fixtures. Now, what worries me about the short sale is that while we would prevent a foreclosure on my credit, we would have to leave all these things (that I may be able to sell to get us moved) in the house, have to move immediately, and will be liable for the $100K difference on my taxes...

I think this year is going to be great for us, and we will be back in shape financially, but I will be screwed if I have to pay $100K in income taxes because of the short sale.

On the other hand, we were going to file for a Chapter 7 (paperwork ready to go) and take all appliances to get us moved, and not have to spend $ on blinds (required for new place we found) or washer and dryer, and start all over and not have to worry about tax implications. the investor had told us he would pay for the move, and give us some $ under the table, but now is just avoiding questions and just trying to get us to sign the sales agreement and disclosures... I was going to file the ch 7 regardless, so how much worse can a foreclosure really affect my credit, since Im not buying for a while anyways..

Thanks in advance for any suggestions!!

[HHM]

Since foreclosure has already started (the sale date is 10 days away), it is already on your credit report, so doing a short sale now, wont make a difference in that regard.

Would you make any money on the deal? Where is the $100K tax liability coming into play on the house sale? In most cases, the gain on the sale of your primary residence is not taxed up to $500,000 (if married, filing jointly; $250K if single)

Without more info, it would seem to me little benefit to you to doing a short sale, and since Chapter 7 is a foregone conclusion, you might as well file BK and let the home go.

[SinkingFast]

Mortgage Brokers have posted here, in the Rebuilding Section about Foreclosure, BK, and your Credit.

If a Foreclosure and BK occur together, down the road, when you apply for another mortgage, prospective Lenders will view the 2 as one event.

If you go thru the Foreclosure and then file BK a year or so later, or visa-versa, then it will be 2 seperate events.

Personally, I wouldn't hang out for the what-if's of the situation. Make your plans and move forward with your life. You won't really benefit from the Short Sale all that much.

All you're really doing is completing the sale for the Lender. Otherwise, the Lender Forecloses and then sells the property themselves. Maybe even to the same buyer you've been talking to.

[avega]

Thanks for the replys, the house would appraise for $350K, but wouldnt sell for any more than $289K based on recent comps..(I know)... I owe $310K plus prepay, plus attorney fees, plus 7 mos back payments. Probably close to $340-350... the sales agreement shows a settlement for $200K!!!!! Thats actually a difference of $150K in "gift income" that would apply for 2007!! and no, I am not making any $ on the deal...
Vs. surrendering in a bk and owing nothing...hmmm.. I just figured out the answer to my own question...

[HHM]

Ok, I see.

I am not sure that forgiven secured debt is taxable as income like forgiven unsecured debt is taxable as income, but in a quick web search, I could not find anything to back-up that assertion.

In any event, there is a work-around to paying income tax on forgiven debt, and that is if you meet the IRS's conditions for being considered insolvent. (which, for most people that have to settle debt, is usually the case).

However, since you don't gain anything from the sale, you might as well let it go to foreclosure and file BK.

[SinkingFast]

Yeah! We worked real hard to get ours sold to avoid the Foreclosure on the Credit. We actually went into Foreclosure, took a last minute offer, and did get the house sold.

We are fortunate that our Lender did not post Foreclosure on our Credit. And that acct does show, Closed by customer, paid in full. BUT, there are 150-180 days lates showing. And the Brokers that posted here said when prospective Lenders see that, they'll assume Foreclosure anyway.

So, as I learned, after all our hard work, we really gained nothing in the end.

[avega]

Funny thing is, I am in the mortgage business... and as far as qualifying for a mortgage, most lenders guidelines dont consider a bk or a foreclosure after 3 yrs after discharge and curing. Unless your credit is high enough at that time to qualify for a prime loan, you may have to go non conforming, but its possible. We plan to marry our cars, so our need for credit is minimal, so I think taking the hit on a foreclosure might be the best thing for us.

Lenders typically dont look at lates for non conforming as long as they are more than 12 months ago, and 24 months for conforming(prime).. But brokers know to use those as a way to charge you yield spread since most people dont think they would qualify for anything better after the bk...

Anyways, thank everyone for their replies, this site is so helpful..