Bernstein & Feldman, P.A.

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Short sales as a solution to an unmanageable mortgage

Maryland residents may be familiar with the high level of foreclosure activity in recent years. The idea of being underwater on one's mortgage can be frustrating, especially if there might be a need to relocate. In other cases, mortgage payments have become unmanageable because of lost jobs, household emergencies or other issues related to the local and national economy. Although the government has worked to provide solutions to keep people in their homes in the midst of financial difficulties, there are times that the programs don't resolve the situations.

There may be programs available through one's financial institution for resolving a past-due mortgage. However, some of these require bringing a loan current, which can be difficult if more than just one or two months' payments have been missed. Long-term forbearance may be an option if a serious household emergency such as a severe injury has prevented participation in gainful employment activity. When all options appear to have been exhausted, a short sale may be the only alternative to allowing one's home to go into foreclosure.

Because a home can be sold for less than the outstanding debt in a short sale, the remaining balance of the loan may be considered income to the seller for tax purposes. Although there have been provisions for this imputed income to be exempted in the past, the 2014 expiration of one such provision makes it important for a homeowner to have all relevant facts before entering into a short sale. In some cases, foreclosure may be the better option.

A real estate lawyer may be helpful for analyzing the options with regard to short sales. Additionally, it may be helpful to have a lawyer inspect loan transaction documents related to the property to ensure that the company initiating foreclosure action actually has the right to do so. In some cases, institutional errors might allow further time for a homeowner to seek other solutions.

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