Short Sale Lawyer Elgin IL – ASM Law
Alternatives to Home Foreclosure – A Look at the Process of Short Sales
For any Illinois homeowner facing the risk of foreclosure, there are a number of alternatives to consider before proceeding. One of those alternatives is the short sale. At ASM Law, we have experience in this process. Our team can help guide you through a short sale to obtain the best outcome for you. Legal expertise can be very valuable to ensure protection of your rights every step of the way. For example, we can provide legal advice regarding your personal liability once the short sale concludes. It’s important for you to understand the content of the transaction documents.
Fundamentals of a Short Sale
In a short sale transaction, the lender consents to sale of the property for less than what you owe. In exchange for releasing you from the mortgage, the bank accepts proceeds of the sale.
As an example, let’s say you owe $150,000 on your home. You locate a buyer who will purchase it for $100,000. With a short sale, the lender agrees to accept the $100,000 in order to release you from the mortgage. This occurs despite the fact that the amount is “short” of what you owe.
Lawyers and Real Estate Agents in a Short Sale
The main difference with respect to short sales is a lawyer can negotiate the transaction and also provide legal advice. Also, in many situations, the Short Sale Lawyer Elgin IL may represent you in different actions too. For example, in a foreclosure proceeding or a bankruptcy filing if the short sale does not go though. Real estate agents, on the other hand, cannot supply legal guidance or representation.
ASM Law – Short Sales, Foreclosures, Bankruptcy Lawyers for the Elgin Community
Below are some common situations where borrowers should hire or at least consult with a Short Sale Lawyer Elgin IL:
Concerns over a Deficiency Judgment
In some cases, a lender may agree to let go of a lien in exchange for the proceeds of a short sale. However, this may not release the borrower from personal liability on their debt. Potentially, the lender might pursue the borrower for a deficiency judgment.
In a short sale transaction, the deficiency is the difference between the selling price and the mortgage debt. As an example, if the debt on the mortgage is $150,000 and the short sale price is $100,000. The deficiency would be $50,000.
The lender might seek a personal judgment against the borrower to recover the funds following a short sale. Typically, after obtaining a deficiency judgment, the lender collects from the borrower by wage garnishing or a bank account levy. However, there are some states that prohibit these types of judgments under particular circumstances. If you could benefit from legal advice regarding your risks of a deficiency judgment, consider a consultation at ASM Law.
With years of negotiation experience in deficiency judgement, our firm can negotiate for a waiver of the deficiency. Or, to settle the matter for a lower amount. Be aware that there might be taxes in the event the lender forgives part or all of the deficiency. If you’re facing a deficiency judgment, our lawyers potentially can help you to file bankruptcy. For some borrowers this is an effective solution.
Understanding a Short Sale Transaction
There’s a legal consequence to every short sale. However, the terms might not be very clear without legal expertise. For instance, on occasion homeowners believe their short sale contract from their lender gets them “off the hook.” Actually, it does not.
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To avoid surprises at the short sale closing, you’ll want to fully the agreement. Non-lawyers can’t provide an accurate legal interpretation of the documents. It’s far better for a Short Sale Lawyer Elgin IL to advise you of the legal consequences of the agreement.
Concerns the Lender is Going to Foreclose
If the short sale does not complete for some reason, the lender may decide to proceed with foreclosure. Your lawyer can evaluate the foreclosure documents and recommend which options are right for you.
By hiring a lawyer for a short sale, you’ll benefit from direct legal counsel if the foreclosure occurs.
The Take Away
Perhaps you choose to not retain a lawyer to assist you through the process of a short sale. Still, you may want to consider consulting with a Short Sale Lawyer Elgin IL at our law firm. Our lawyers can answer questions you have that will streamline the process for you.
Tax Implications of a Short Sale
For borrowers falling behind in their mortgage, a short sale may sound like an ideal solution for avoiding foreclosure. However, if the borrower does a short sale, he or she might be subject to significant income taxes. In many scenarios, the lender may seek a judgment against the borrower after a short sale to collect the deficiency. In general, after obtaining a deficiency judgment, a lender might collect the funds through standard collection practices. For instance, levying the borrower’s accounts or garnishing wages.
If the Lender “Wipes” the Deficiency Judgement
Still, the lender might opt to forgo seeking a deficiency judgment, forgive the amount and send you a cancellation of debt (“1099-C) form instead.
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Cancelling of Debt as a Form of Taxable Income
If a short sale leads to a deficiency, the lender still might not choose to forgive the debt. This would mean you are not under the obligation to pay the lender. Typically, the lender must report the total canceled debt to you as well as the IRS. This is done on a tax Form 1099-C. In this circumstance, you may need to report the amount as a form of income for federal taxes. The extra income also might impact your state taxes.
Still, it’s possible to avoid tax liability after a short sale deficiency if you can fulfill requirements of the Mortgage Forgiveness Debt Relief Act of 2007. This permits taxpayers to leave out some types of forgiven debts from the taxable income they report. However, this is only if the forgiven debt:
-Helps to purchase, build or improve a primary residence or for refinancing debt from those actions. However, this exclusion applies only to debts forgiven between 2007 and 2020. Or, applies only to debt that discharges after 2020 if the borrower enters an agreement before Jan. 1, 2021. The tax exclusion, though, does not apply to loans for second homes or for something other than real estate. For example, of the borrower takes a home equity loan and applies the proceeds to credit card debts. Married people may possibly exclude up to $2 million in forgiven debt if filing a joint return. Non-married individuals can possibly exclude $1 million in forgiven debts.
Other Potential Ways of Avoiding Tax Liabilities Following a Deficiency Judgement
The IRS provides some exceptions to including forgiven debt in gross income. These include:
-Debt that eliminates through a bankruptcy filing.
-Some forms of agricultural debts and non-recourse loans.
Talk with our law firm today to learn more about alternatives to foreclosure. A Short Sale Lawyer Elgin IL can advise you if a short sale is feasible for you. Our firm also handles bankruptcy cases, which is another way borrowers in distress can seek protections.