Delaware homeowners who are dealing with financial challenges may face the need to decide how to deal with a mortgage that is not manageable. Some financial institutions may consider working through situations to allow homeowners the opportunity to bring their loans current. In hardship cases, it may even be possible to work out a long-term payment suspension to allow time for an adverse situation to be handled. However, there are many cases in which a homeowner is still unable to get back on stable footing with regard to a home loan. In such cases, a short sale is one of the few remaining options to explore.
A short sale can be a helpful solution for a homeowner, especially if the home in question is underwater. However, it is crucial that those who are considering the short sale of their home be aware of the financial and legal ramifications. In 2007, Congress provided for tax relief in connection with imputed income related to short sales. Because such a transaction allows for a home to be sold at less than the amount owed, the balance that is not paid is considered to be imputed income for the individual responsible for the mortgage.
Because imputed income could make a huge difference on one’s federal income tax bill, it may prove to be more financially effective to allow a home to move into foreclosure. Although there could be long-term credit implications, a high tax bill could create additional financial problems. Further, federal taxes cannot typically be erased through actions like bankruptcy.
In deciding how to best deal with financial challenges with a home, it could be helpful to meet with a real estate attorney. This would allow for time to explore options for halting a foreclosure. An attorney could also be helpful in seeking opportunities for long-term forbearance in cases of a client’s poor health or other financial emergencies.