Foreclosure, bankruptcy, and short sales are the few options for homeowners seeking relief in Tennessee. And with several options that are hard to differentiate, you are likely to make a few mistakes. But with the guidance of family law attorneys in Kingston, you will quickly figure out what to do and know what to expect.
All information regarding your home’s value and finances are critical requirements for a short sale. It is, however, necessary to understand what it is all about to set you straight on the choice you are about to make.
How Does a Short Sale Work?
Homeowners who cannot make further payments and are upside down in their mortgages can explore short sales. As much as the lender is not obliged to agree to the short sale terms, they are more likely to accept if you have other assets to pay off the debt.
But every homeowner hopes that their lender accepts the money from the short sale in satisfaction of the mortgage debt. If they disagree, they might file a lawsuit to recover the difference between what you raise from the short sale and what is owed on the mortgage.
What are the Tax Implications of a Short Sale in Tennessee?
Getting an acceptance from the lender might seem like a dream come true for any homeowner struggling with debt. However, it is critical to be aware of the tax implications. Once they accept less than what is owed, the lender has a legal obligation to submit a 1099-C form with the IRS.
The debt might be discharged after the short sale, but you will remain with a tax obligation. For instance, the amount of debt discharged from the short sale is considered taxable income. Your debt discharge income (DDI) will be $100,000 if the house is sold for $400,000, and the mortgage debt was $$500,000.
How Does a Short Sale Compare to a Foreclosure?
Unlike a short sale where the homeowner is involved in the sale of the house, a foreclosure involves the lender repossessing your home. After that, they will try selling it to recover the balance of what you owed.
One of the similarities is that they can try to recover the difference from you if the sale doesn’t raise the expected amount. Foreclosures also come with specific tax implications on the homeowner, similar to a short sale. Tennessee real estate attorneys can help you compare and choose the right one.
How Does Bankruptcy Compare to a Short Sale?
In bankruptcy, people struggling with debt get the advantage of keeping their homes in Tennessee. You neither have to sell the house nor give it up to the lender. If you can make some mortgage repayments and would love to keep your home, Chapter 13 would be ideal.
Homeowners who are uncertain of their ability to stick to a repayment plan can opt for Chapter 7 bankruptcy. Here, you will keep your home and a few other exempt items. The extra property might be liquidated to repay creditors who cannot claim the difference from you.
How Soon Can I Buy Another Home After a Short Sale?
Among the most significant benefits of a short sale is that it doesn’t damage your credit score like a foreclosure would. This means that you can buy a home sooner than you would be able to if your home were foreclosed. But generally, government-backed home loans are more forgiving than conventional home loans.
A day after a short sale, you could qualify for another home loan under the non-QM programs. Notably, the credit qualifying requirements vary, but the underwriting criterion is flexible. However, you might have to deal with more stringent requirements such as a substantial down payment and higher mortgage rates.
What are the Conditions for FHA Loans After a Short Sale?
FHA loans are popular among people that have lost their homes through a short sale or foreclosure. It is known to have ‘no waiting period’ but has a few strict caveats. You can access the home loan immediately if:
- You paid all the installments on time in the last 12 months preceding the short sale
- You were not in default of the previous loan at the time of the short sale
If your circumstances don’t tick the above boxes, you might have to wait three years before qualifying for an FHA loan. The waiting period begins on:
- The date the short sale took place
- The date the FHA paid the claim on the short sale
However, you could be exempted from the waiting period if extenuating circumstances led to the mortgage default. Kingston real estate attorneys can help you explore these exemptions if you went through:
- A job loss that involves a primary wage earner
- Death of serious illness of a close family member, usually related to the primary wage earner
- Divorce in certain circumstances
Why Do I Need a Kingston Real Estate Attorney?
It is easy to view legal representation as unnecessary when facing financial hardships. You might decide to save a few dollars by not hiring a real estate attorney in Kingston, TN, but the repercussion of making the wrong legal decisions can cost you way more.
Homeowners have several options for fixing a debt situation, but all alternatives do not have the same outcome. What works for another person might not automatically work for you because the circumstances and the end goals are different for different people.
Attorneys Bringing Knowledge and Compassion to Your Case
The answer to whether a short sale is the best option or not depends on your exact circumstances. A blanket answer would be misleading and can land you in difficult circumstances.
Closer evaluation of the guidelines on short sales can ease the confusion and bring clarity. A seasoned attorney’s knowledge, expertise, and experience can help you decide on what to do. Get in touch with the professionals at Davis Law Firm to get clarity.