While I practice foreclosure defense–aimed at saving homes from foreclosure–I realize (and appreciate) that trying to hang on to a home is not for everyone. Homeowners struggling to make their mortgage payments have the option of pursuing a short sale to avoid foreclosure. In a short sale, the lender agrees to allow the borrower to sell the property for less than what they owe on it. A short sale lets the homeowner walk away from the home without any liability. Particularly, the homeowner will owe the lender nothing on the loan.
A short sale helps homeowners who simply want to walk away from their homes free and clear. A short sale, most importantly, helps homeowners avoid the stigma of a foreclosure, and lessen the damages to a homeowner’s credit score.
Homeowners considering a short sale should consult with a tax adviser before committing to such a sale. Because a short sale requires the lender to forgive some of the outstanding debt, there are tax consequences involved with this form of loss mitigation.