Homeowners in New Jersey have several options if they can no longer make mortgage payments. One such option, a short sale, allows you to sell your home for less than the balance of your mortgage.
If you owe more than the market value of your property and struggle to make payments, explore whether a short sale could be a solution.
The short sale process
When your mortgage balance exceeds the home’s value, you must bring the difference to settlement if you sell the home. With a short sale, your lender agrees to forgive the balance of your mortgage. The approval process for a short sale can take months after you submit an offer to the bank. This increases the risk that a buyer will back out of the transaction.
The IRS will consider the forgiven mortgage balance as part of your income during the year that you short sell your home. For example, if you have a $175,000 mortgage and sell the property for $125,000, you must pay income taxes on $50,000 beyond your salary and other income. For many homeowners, this results in a tax burden of tens of thousands of dollars.
A short sale will also impact your credit score. This will make it more difficult to buy another home.
With New Jersey bankruptcy, you do not have to pay income tax on the forgiven debt. You may even be able to arrange to stay in your home if you can negotiate an affordable mortgage payment. Consider all possible solutions before moving forward with a short sale.