Frequently Asked Questions

Will I receive a tax bill from the IRS?

Many homeowners do not realize that they may be in store for a large tax bill from the IRS after the short sale of their home. Every situation is different and you should absolutely contact an accountant or tax advisor before conducting a short sale to determine your potential liability.

As an example assume you purchased your home for $400,000 in 2003. Since that time it has appreciated to $500,000 and you refinanced and now owe $450,000. You need to sell your home now but due to the bad market you can only get $400,000 for it. Your lender accepts a short sale since you owe them $450,000 but they are accepting only $400,000. The IRS considers the $50,000 that was "forgiven" by the lender as "debt relief" income.

Your lender will probably send you a 1099-C in the amount of $50,000 and the IRS will want you to pay taxes on that amount. What are the odds that you have that kind of money laying around after you just went through a short sale on your home? That said if the homeowner is legally insolvent (owe more debt than their assets are worth) when their house is sold, they might also be exempt from tax.

Be very careful regarding your tax obligations BEFORE you consider a short sale, deed-in-lieu-of-foreclosure or foreclosure. The IRS will use your tax basis on your property to determine your tax obligations so you must be able to figure this amount out.

IRS Form 982 is used to request a "reduction in tax attributes" due to insolvency. This may allow you to avoid having to pay taxes on the debt relief you experience with a short sale. The easiest method to reduce the tax liability for homesteaded property is through the “Mortgage Debt Forgiveness Act” (H.R. 3648). This law was signed on December 20th, 2007 and allows for homeowners of homesteaded property that have had Short Sales approved and closed to not have any tax liability. Definitely worth talking to a tax attorney or accountant about! For more information please visit www.IRS.gov.

How Much Do You Charge?

There is typically not a fee to the homeowner. A Short Sale negotiator charges between 1-3% per transaction, depending on the time and complexity of the negotiations. Real Estate agents get paid in a variety of ways, depending on the circumstances of the transaction and the buyer.

• The lender will agree to pay a portion of the commission and related fees, or
• The lender may agree to a seller credit towards the buyer’s closing costs if requested
• The buyer may pay for the fee

How Long Does The Process Take?

Once a purchase offer is received on the Seller’s house, the average timeline is 2-3 months.

Is Washington a non-recourse state? Can deficiency judgments attach to residential property owners whose property is lost in foreclosure or sold as a short sale?

Washington is a non-recourse state but the answer to this question is not simple. If the first position lien holder non-judicially forecloses the mortgage on seller's residence, that lien holder cannot take a deficiency judgment. A non-judicial foreclosure is a foreclosure that occurs without lender filing a lawsuit against debtor to foreclose the mortgage. The overwhelming percentage of all foreclosures in Washington state are non-judicial.

However, if the first position lien holder judicially forecloses a mortgage, the lien holder can take a deficiency judgment. Of course, a judicial foreclosure means that lender did file a lawsuit against debtor to foreclose the property. Agricultural property must be judicially foreclosed.

Any lien holders who are junior or subordinate to the lien holder who forecloses on a property, judicially or non-judicially, can still seek recovery of any outstanding amounts owing from seller to the junior lien holder after the foreclosure sale. The junior lien holder's rights do not take the form of a deficiency judgment, but junior lien holder can, nevertheless, seek recovery of all amounts still owing.

In a short sale situation, the term "deficiency judgment" has no application. However, if any secured lender does not specifically discharge seller from the obligation to repay the amount not repaid through the proceeds of sale, then lender can pursue collection of the unpaid amounts from seller, after closing. Seller may or may not have a defense to lender's collection efforts, based on seller's situation. This is true of senior and junior liens. Just because the lender "approves" the short sale does not mean that lender discharges the remaining debt. An obligation to repay the outstanding balance to a secured creditor can survive closing of a short sale, even if secured lender releases the security agreement. (source: WARealtor.org)

For more information on deficiency judgments and 1099’s please consult IRS Pub 523, Code form 982 section 121, The Mortgage Debt Forgiveness Act H.R. 3648 as well as a CPA.

I'm not looking to do a short sale, but if you list my home, what services do you offer?  

We advise you as to the most advantageous ways to offer your home for sale, and your home is fully exposed to the largest number of potential buyers possible. Click here to view our Marketing Packet.