Does a Short Sale Make Sense?

As explained in my post on “short sales,” these can be a good method for getting a home sold.  But do they make sense?  Certainly for the realtor involved, who won’t get a commission if the house isn’t sold, they make a lot of sense.

For the mortgage company in first position they make sense because usually that company doesn’t have to reduce the amount they are paid.  For the second mortgage, such a sale might make sense if they are going to get wiped out by a pending foreclosure anyway. 

But does it make sense for the homeowner?  Well, sometimes, but rarely.  It sounds good on paper – the home gets sold and foreclosure is avoided.  But, the homeowner won’t get any money out of the deal – it will all go to the mortgage companies and for the costs of sale.  Then, they may get hit with an action for a deficiency of what wasn’t paid. 

And, believe it or not, if the homeowner isn’t sued for a deficiency, the IRS will certainly tax them on the amount of the loan that was “shorted” or forgiven.  The only solution is to file for bankruptcy.  So, what did they gain by the “short sale?”