Short Sales in Massachusetts are on the Decline
The news keeps reporting that foreclosures and short sales in Massachusetts are on the decline. While this may be true, for some home owners foreclosure may be right around the corner. There are still homeowners that have not found work, working at lower pay or have run into some other financial hardship. While there are a few options to foreclosure, a short sale is many times the best option for an upside home owner who is forced to sell their home.
I have met with a few upside down home owners recently who’s largest concern is if the Mortgage Debt Relief Act will be extended. As of writing this post it still has not been extended. With that said the concern is that their will be a tax liability incurred if a short sale is successfully completed and the debt is forgiven by the bank. Prior to 2007, forgiven debt was considered taxable income. The Mortgage Debt Relief Act, exempted forgiveness of debt on a primary residence.
All is not lost. There is still and always has been tax code that says if you are insolvent the forgiven debt is not taxable. I would say for a lot of homeowners I have done short sales for they are probably insolvent.
The other thing to remember is that if you are forgiven $50,000 dollars and you are in the 20% tax bracket your tax liability will be no more then $10,000 at best if any.
Are Short Sales in Massachusetts Still Viable?
The short answer is yes, short sales are still a viable option for 2014 and beyond. What many of these homeowners forget is that a bank can still forgive the debt after a foreclosure, still leaving you with a tax liability. In the event of the foreclosure, the deficiency balance will generally be far greater in a foreclosure than a short sale, leaving you with an even larger tax liability.
So in this case, you would be far better off doing short sale and limiting your tax liability or going into bankruptcy before the debt is forgiven. Remember tax debt cannot be wiped out in bankruptcy.
Another case for a short sale, is if you want to buy a home again in the near future, a short sale will make the process easier. You will not have a reported foreclosure or bankruptcy on your credit report.
It is a mistake to do nothing
Many homeowners faced with the idea of foreclosure go into paralysis and do nothing. That is the wrong thing to do. You will lose all control over the process and the outcome. While no one has a crystal ball and can predict what happens in a short sale or foreclosure, you certainly can control the process to a more favorable outcome for you or at least try! The best possible scenario is we can complete a short sale with the debt forgiven. Hopefully the debt will be forgiven and you talk to your CPA to find out that the tax liability is small to none because of insolvency.
I can tell you in the many years I have been doing short sales the banks are far more willing to forgive the debt in a short sale then ever before. This is great news for upside down homeowners.
The best thing to do is at the first sign of trouble consult with the appropriate professionals to see what the best course of action may be for your particular circumstances. Whether it is a loan mod, filing for bankruptcy or doing a short sale, your options are generally better then a foreclosure. Consult your professionals and find the best course of action.
This post, Are Short Sales in Massachusetts still a viable option in 2014? has been provided by Kevin Vitali, your Massachusetts Short Sale REALTOR. If you would like to discuss your situation with me please call 978-360-0422 and I can help you decide the best course of action.