Short sales can have devastating consequences for a seller. They are not the answer to every struggling seller's dilema. In reality, there are numerouse possible long term problems faced by short salers.
In most cases, the debt that is released at closing does not disappear. As a matter of fact it is not forgiven at all! Rather, the seller's lender requires the seller to sign a contract in which the released debt becomes an on-going, unsecured obligation of the seller. If unpaid, the lender can take a judgement lien against the seller which will constitute a lein against any other real property owned by the seller at the time or in the future, for up to 20 years or until paid. If the seller's property is foreclosed, however, the debt would have been eliminated completely, leaving the lender with no long term recourse against the seller.
In some cases, the debt that is released will be considered as income by the IRS for which income taxes must be paid. However, had the property been foreclosed, no income taxes would be owing.
While most conclude correctly that a foreclosure will destroy a seller's credit rating, many overlook the fact that a short sale will have the same effect. A short sale reported on a seller's credit can have the same negative effect.
Do your research to decide what is the best choice for you!
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