In our Ask the Expert Section, we recently received the following question from Helen, she asks, “After going through a divorce and temporarily losing my job, I’ve been struggling to make payments on my Knoxville home. I’ve been trying to modify my loan, but haven’t had any luck. Now, I’m considering doing a short sale, but am afraid of the consequences. If I do a short sale on my Knoxville home, what are the possible repercussions?”
There is no perfect solution to avoid foreclosure on your Knoxville home. As a homeowner facing foreclosure, it is most important to consider what solution will work best for you and that will offer you the best possible outcome. Generally, short sales are a good option because it can allow you to walk away from your home debt free, it allows stay in your home while the sale is being negotiated, and it gives you time to get a plan together for once the sale is complete.
As with all options, short sales do come with possible repercussions including:
(1) After the short sale is completed on your Knoxville home, your lender still could have the right to pursue you for the difference of what is owed on your home. In many cases, lenders will waive their right to pursue you for a deficiency judgement. Still, it is important to verify that prior to the sale being completed.
(2) Doing a short sale will do damage to you credit, but Knoxville short sales less damage to your credit than foreclosures. For homeowners who go through foreclosure or have multiple bankruptcies, the wait is 5 years. A shorter wait time of 3 years can apply if the borrower qualifies for what Fannie Mae considers to be “extenuating circumstances.” The borrower must provide evidence that the events were “…nonrecurring events…beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.” For Knoxville homeowners who do a short sale, the wait time is 2 years. In the case of a short sale, there are not exceptions to shorten the wait period.
(3) Short sales can come with tax repercussions as well. For now, the Mortgage Debt Forgiveness Act protects homeowners from paying income taxes on their forgiven debt. But prior to 2007, homeowners that did short sales on their home would be required to pay income taxes on their forgiven debt.
Completing a short sale is a big decision. If you have questions about the tax or legal ramifications, it is important that you speak with an attorney or tax professional.
Do you know your alternatives to avoid foreclosure on your Knoxville home? My team and I specialize in helping homeowners avoid foreclosure. Give us a call today at 865-696-9002 to see what options you have to avoid foreclosure or send an email to [email protected]. Foreclosure isn’t your only option, my team has helped many homeowners avoid foreclosure on their Knoxville home.