Will I have to pay capital gains taxes if I sell a property as a short sale?

No. Capital gains would indicate that you are in some way better off financially because of money you have made. In a short sale, you lose and owe money. The only thing the bank could possibly mean is that the deficiency will be reported as 1099 income and you MAY have to pay taxes on that, but not as capital gains. New IRS rules provide tax relief on this “profit” from forgiveness of debt on your primary residence but not on investment property.

If I pay mortgage insurance and default on my loan, why wouldn't that cover the deficiency amount?

In some cases it will and in some cases it won't. It depends on the amount of the deficiency. Usually the mortgage insurance only covers a certain amount. Moreover, the lender will try to collect from you before they file a claim with the mortgage insurance company. The mortgage insurance is not there for your protection, just the lender's.

We had a first and second loan and went through foreclosure. The first was paid off and we were told the second would be forgiven. Now a collection company is coming after us for the second, what do we do?

The bank will never forgive one dime of debt unless it is explicitly stated in writing and you have it reviewed and confirmed by an attorney. The fact is they probably lied to you verbally. You're only recourse now is to engage in a legal dispute against them or file bankruptcy.

What are the implications of unpaid judgments?

Worst case scenario, your wages can be garnished.

How long does the foreclosure process take?

Complicated question depending on what you consider the start of the process to be. Generally, the Bank will send a notice of default (NOD) to the title company and trustee. From that time it takes between 3-9 months for the house to go up for auction, during which, you can pay the delinquent amount to "cure" the foreclosure proceedings.

Will I still have to pay any taxes if I do a short sale?

This is a broad question depending on whether we're talking about property taxes or federal income taxes. You may have to pay extra income tax if the bank sends you a 1099 for the deficiency. SOMEONE will always have to pay property taxes. Whether its you or the lender depends on their policies and the specific agreement you reach while negotiating the short sale.

I owe more than my home is worth. Am I eligible for short sale or is my only option foreclosure or bankruptcy?

Always consult your lender as to what your options are. They are usually short sale, deed-in-lieu of foreclosure ( an voluntary surrender ), and foreclosure. The banks like to prevent foreclosure when at all possible. They've even been known to lower people's rates and payments because of all the new defaults in '06 and '07. Either way, your first action should be to get information from you lender on what options they provide.

Does a good credit score help the seller trying to do the short sale?

Only inasmuch as their credit score will stay high as long as they don't make any late payments leading up to the short sale. Some lenders may call the deficiency a judgment though, which will hurt the score a bit.

Will I have a higher interest rate on future mortgages or will they be harder to obtain?

It all depends on the arrangement between you and the lender. If you pay them a promissory note for the deficiency, then the damage to your credit will be minimal and you shouldn't have a problem obtaining loans in the future. If the lender shows "settled for less than the amount due" on your mortgage tradeline, some future lenders will look at that as a foreclosure. Some lenders even report short sales as foreclosures. Here's what to do: Obtain, in writing, your lenders policies on short sale credit bureau reporting. Then ask your mortgage broker how that affects your ability to qualify in the future. Generally, when you get a new mortgage, as long as you don't have a foreclosure, bankruptcy, or unsatisfied judgment, your ability to qualify will be the same as it is now (and your credit score needs to stay the same).

I want to do a short sale and have a 2nd mortgage, does this make me ineligible?

No. Both of your lenders will need to be satisfied in some way to complete the short sale. If your first lender will be paid off by the sale, then you just negotiate the terms with the second lender.

I have a home that is worth $560,000.00. 1st is $442,000.00, 2nd/HELOC is $130,000.00. Taxes say $10,000.00. Broker fee $10,000.00. Net $540,000.00. $572,000.00 less $540,000.00 $32,000.00 Short. What will happen? Can it happen? What will the 1st lender take and what will the HELOC lender take? Looking forward to your response!

Yes it can happen. The first lender will be paid off completely and then you and the 2nd lender must make an "arrangement" for the deficiency. Best case scenario is they write off the deficiency and simply report it as 1099 income to you or a satisfied judgment. If this is your primary residence you will probably not have to pay IRS on the forgiven amount due to a new law.

I purchased a new home in February, with a first loan of 80% and a second loan of 20%. I listed my old home with the plan of paying my second loan as soon as the old home sold. This home has been listed for over six months and has not sold and the price has been reduced substantially. I have been paying for mortgages on both homes. I am using my savings and I cannot afford to keep paying both. I cannot afford my new home without paying my second loan. Can I short sell it?

You and everyone else! Yes, you can do a short sale. The problem you face now is time constraints. Talk to the lender on your old house about their options such as deed-in-lieu of foreclosure. Find out what their short sale requirements and policies are.

Does the mortgage company HAVE to send the IRS a 1099 us on our short sale? Is it a law?

The answer is no, the mortgage company does not HAVE to do anything when you have a short sale. It is very likely however, that they will not simply "charge off" or write off the loss of deficiency money. Due to new laws, however, receiving a 1099 does not necessarily mean you will owe taxes on that amount.

 Do I have to do anything special to "Short Sell" compared to a regular sale?

 No except you have to know your mortgage company policies in advance. Many lenders will not consider a short sale unless you can actually present a qualified buyer and a contract for them to consider. You should make it clear to the buyer that their offer would constitute a short sale and could take longer to complete, assuming the lender will accept the price.

  Should I do repairs or updates to my home before marketing it?

 If you are looking for a quick sale to dodge foreclosure and are already behind in payments you probably should not spend more money on the home. You should do those things that cost little or no money such as a good cleaning. Trim bushes and mow the grass and tidy up outside.

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Note:  When ever you communicate with your lender always try to do so in writing so you can document their responses. In any event never sign anything unless you have every aspect of the transaction including their policies and terms in writing and reviewed by an attorney in advance. Make sure you cover all mortgages or liens against the property in writing.

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