A short sale is a real estate transaction in which the sales proceeds are insufficient to cover the amount still owed the lender. The lender calls this difference a "deficiency".
Often terms get misused - not all foreclosures result in a short sale - and certainly not all short sales are foreclosures.
For all the skinny click below
http://mysite.verizon.net/resykomc/thesavvyrealtor/id1.html
UPDATE: In late December the Senate passed and the president signed into law the Mortgage Forgiveness Debt Relief Act - basically ending the taxation of the amount of debt the mortgagee forgave for three years. For example, if you went into forclosure or had an agreement from the lender for a short sale with a $30,000 deficiency - the Fed saw this $30k as "income" and taxed you on it. See the Post article here.
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