If you’ve been following the Orange County real estate market over the last six months, you know that more distressed homeowners have turned to short sales vs. foreclosures, in record numbers. But before they choose short sales, the average homeowner wants to know which one is worse?
For those homeowners who are considering foreclosure the first thing that they need to know is that the average Orange County foreclosure can take up to two years to be completed and if the homeowner had a line of credit on their home, the lender may issue a 1099, plus report the homeowners line of credit as income, to the IRS. The lender also has the right to go after the homeowner for any shortfall or deficiency that remains on the loan too.
The only thing that could save homeowners who choose foreclosure from facing taxation from the IRS is the Mortgage Debt Forgiveness Act of 2007 which offers homeowners the ability to avoid paying tax on any loan that might be reported as income. If the Mortgage Debt Forgiveness Act of 2007 isn’t extended by the end of this year, homeowners who opt for foreclosure, could face taxation by the IRS.
With a short sale, the homeowner first gets the benefit of speed and certainty. Although the average foreclosure can take up to two years, many homeowners are caught off guard once the foreclosure sale takes place and the sheriff shows up to their door step with the three day notice to quit. The average short sale can be approved in as little as 45 days (depending on lender) plus short sales are also more beneficial for the lender too. They will be able to get and resell the home quicker as well compared to waiting up to two years and risk the possibility of home becoming uninhabitable while it sits vacant during the foreclosure process.
Best of all, homeowners in California will enjoy more protection, if they choose short sale, compared to homeowners in other states thanks to the recent bill (Senate Bill 458), that was approved on July 2011 and will protect homeowners from facing the hassle of their lenders going after them for any short fall or deficiency that remains on their loans.
If you still have more questions about short sales and foreclosures, contact the Fred Sed & Associates team today at (949) 272-0125.