Solving the Knoxville Foreclosure Crisis
One Homeowner at a Time

Rick Smenner

RE/MAX Preferred Properties
[email protected]

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Knoxville Short Sale Question: What Happens To The Debt?

knoxvilleshortsalewithtwomortgagesIn our Ask the Expert Section, we recently received a question from Marshall, he asks, "I'm thinking about doing a short sale on my Knoxville home. I tried to complete a loan modification, but it was recently denied. I feel I have no other way to avoid foreclosure on my Knoxville home. I'm concerned though about the money all the money that I owe. What happens to the money that I still owe to my lender?" In a Knoxville short sale, a home is sold "short" and a lender accepts less that is owed on a home, to avoid having to go through the costly foreclosure process. There are a few different ways that the remaining debt, or deficiency is handled. Here are a few possible outcomes. One outcome that can occur is that the debt is forgiven all together. Contrary to what you may think, this is a common outcome in many Knoxville short sales. Obviously, this is the best outcome that a homeowner could ask for to walk away from the home completely debt free. Another possible outcome is that the short sale lender requires the homeowner to sign a promissory note. When that is the case, the homeowner will make monthly payments for a set about of years to help pay back some of the debt that is owed. The lender makes sure the payments are small enough that the homeowner will be able to make the monthly payments. Finally, while the debt in a Knoxville short sale can be forgiven all together, it is important to remember that the Mortgage Debt Forgiveness Act has not yet been extended. If it does not get extended prior to the end of the year, any homeowner who does a short sale will be required to pay income tax on the forgiven debt, since the debt is considered income. In many cases where a homeowner has does a short sale, they are able to prove insolvency, which would prevent them from paying any taxes on the forgiven debt. If you have questions about the possible tax ramification, be sure to talk to an attorney or tax professional. Are you facing foreclosure on your Knoxville home? If so, please do not hesitate to give my team a call at 865-696-9002 or send an email to [email protected]. We’ve helped countless Knoxville homeowners avoid foreclosure, give us a call today for a free consultation.

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