Many Texas homeowners who get behind on their mortgages and who have little hope of catching up initially attempt to sell their homes in the hope a sale will solve the problem. If the home does not immediately sell, however, they may be left trying to decide between whether to seek a short sale or instead allow the foreclosure process to happen.
While a short sale used to be a good idea, it no longer is always so. In such a sale, the lender agrees to sell the home at a much lower price than what is owed on the mortgage. They then forgive the remaining debt, but report it on a Form 1099-C as imputed income. A law passed in 2007 that prevented forgiven debt due to short sales from being treated as income for federal income tax purposes has now expired, however. This means that a person who has a large amount of debt forgiven in this manner may now face potentially huge tax liabilities.
The mortgage process can be long and involved, with numerous steps that take varying amounts of time. In some cases, it is possible for a debtor to receive a special or long-term forbearance lasting from 18 to 24 months, which gives a reprieve from payments.
Some people do not want a short sale and also want to stop foreclosure of their homes. Sometimes, it is possible to do so through filing a Chapter 13 bankruptcy petition. Those who are facing foreclosure may want to seek the advice of a bankruptcy attorney concerning their best options. An attorney may be able to review the client’s financial circumstances in order to make a determination about what is most advisable to do.