Hi I am wondering if it be best for me to sell my house at a short sale price or let it go to foreclosure?

Question

I've been told that if it's sold as a short sale I will have to pay taxes and if I let it go into foreclosure I dont have to pay taxes. Is that true?

Answer 1

If you can convince the bank to take the short sale, that would be best.  In a foreclosure they will take the property, then sell it for what they can get.  They can, and probably will, then file a judgment against you for the difference of what it sold for and what you owe the (which will include their court fees, attorneys fees and any other fees they must pay in connection to this which will include any taxes they have to pay).  

Answer 2

Selling as a short sale is the better option by far. Better for you, better for your lender and better for your neighbors too since they won't have a home sitting empty and deteriorating while the bank processes the foreclosure and markets the house for sale. Your credit will suffer regardless but you'll have done less damage to your credit scores if you opt for the short sale. You're chances of qualifying to buy another home in the future are much better if you opt for the short sale too. Depending on your situation you might consider another option as well ... maybe you could market your house as a "rent to own"? You could collect a non-refundable deposit/option fee from your tenant which you could use to help you catch up on late payments. You may be able to create a positive monthly cash flow on rent as well. And then of course there's the possibility of additional income for you when the "tenant-buyer" actually purchases the house in 12-24 months. I've experienced this myself and done well selling as a "rent to own" ... check out the article at :  http://ezinearticles.com/?How-to-Use-the...       and then learn more here at www.pwrsll.com

I wish you well!    

Answer 3

Not entirely true... I think Bush might have done away with taxable income on a short sale.  ie: if the bank sells it for 100K and you owe $120K then you pay taxes on $20K as though they gave you that money.  I saw in the news a while ago that law was proposed for revision so you may want to check that out.

Foreclosure is horrible for your credit and many loans (especially if you refinanced ever) are now recourse loans.  Meaning, they will get the judgment on  you.