If you owe more for your house than what it is worth you only have a few home selling options, one of which is losing your home to foreclosure. To avoid a foreclosure, under some circumstances, you can sell your house as a short sale. A short sale is selling your home at a price that is less than what you owe the bank. Thus the funds at the closing table are short of your payoff.

Usually only experienced real estate agents know how to complete a successful short sale. The key is to find a buyer for your home or a real estate investor. The Realtor you choose will present offers from the buyer/investor, and will negotiate with the bank to accept less than what you owe them. Some banks will accept a short sale because they do not have to foreclosure on the property, thus saving them money.

Before the new Debt Relief Act of 2007 was signed into law home owners who accepted a short sale were taxed on the difference of what they owed the bank and what the bank accepted.

 For example if you sold your house for $100,000 and you owed the bank $150,000. The bank would be accepting $50,000 less than what you owned them. In return the bank sends the IRS a 1099 form for the $50,000. The next year the IRS would expect you to pay regular income tax on the $50,000. This would amount to a tax of $14,000 for the typical American family.

 The new Debt Relief Act of 2007, signed by George W Bush will allow people to sell their house as a short sale and not be taxed on the shorted amount. This is an enormous benefit to home owners who are over leveraged on their home. You now can accept a short sale and not be taxed on the shorted amount. As always be sure to consult your tax advisor for your particular situation. 

This is just the very basics of Short Sales, if you have specific questions, or would like help, feel free to contact me.