When looking at the differences between foreclosure properties and short sale homes, the differences can be seen in the benefits that each option has to offer. One of the benefits of a short sale versus a foreclosure is that homeowners can stay current on payments while working to go through with a shortsale transaction. This helps to avoid the credit damage that comes with missing payments and going into default.
Short sales also offer sellers the benefit of having more say in the sale price of the home. It is in the best interest of the seller to get as high of a price as possible to avoid owing money on the loan after the sale. However, even though you may have more say in the final sale price, the offer still has to be approved by the bank.
Many homeowners find that a short sale offers the benefit of avoiding the social stigma that often comes with going through a foreclosure. No one enjoys the stigma of having a home foreclosed upon, which makes these transactions beneficial to many individuals.
Homeowners that choose shortsales also have the benefit of being able to buy a house more quickly. If payments have not fallen more than 30 days behind and the lender does not require a deficiency judgment, it may be possible to buy another home fairly quickly. Keep in mind, it may be a bit more difficult to find a lender to fund the loan. Of course, when compared to buying after a foreclosure, a shortsale has many benefits. After going through a foreclosure, it may take 5-7 years before a home can be purchased again.
Potential Tax Consequences of Both Options
The potential tax consequences of foreclosures and short sales must be considered when looking at the differences between the two options. Currently, legislation relieves short sellers of facing Federal tax consequences. While the amount of the loan forgiven by the lender is technically considered to be income by the IRS, this tax burden is eliminated. However, state local taxes may apply.
Foreclosures also fall under the same legislation. Debt relief was offered until the end of 2012. However, new legislation has provided an extension of that relief until the end of 2013. After a foreclosure, a bank could issue you a 1099 and you may also be responsible for local taxes, depending on the specific tax codes in your state. Individuals going through foreclosure should hire a tax accountant for assistance.