Expert: Dennis Herman - 3/18/2009

Question
QUESTION: Hi Dennis,

I have heard recently that if you do a shortsale on your property as a primary residence, you can avoid paying any taxes.  Is this the same for a rental?  I have a rental home that I am thinking of doing a short sale on, what would be the best way to avoid taxes?  Do I need to be delinquent on my payments to do a short sale?

Thank you,

Angela

ANSWER: Angela

At the present time there seems to be no assistance available for rental property.  You can read the entire Economic Recovery Act on this site.

http://www.treasury.gov/press/releases/tg33.htm

So far support only exists for home owners.  I will offer some suggestions that may help.

Call the lender to see if you qualify for refinancing.  This may lower your payments.

Call a local Real Estate Agent.  Ask for a CMA on the property.  This will give you a list of properties in the area for sale and those that have sold.  This may give you an idea of the value.  

As a general model I market property for a short sale only after the owners have discussed this issue with an attorney.  This ensures all possible remedies have been exhausted before offering the property on a short sale.

I prefer an attorney be involved in the process for a number of reasons.  An attorney is more up to date on these ever changing laws.  I am licensed to market real estate, an attorney is licensed to practice law.  An attorney may be better able to discuss this matter with a lender and come out of the negotiations with more favorable results for the client.  An attorney will know how to deal with the lender.  Although many real estate agents have been properly trained to handle these situations, many are not qualified.  This could result in a waste of time and a lost sale.  The sequence of events required to sell a property on a short sale will be dictated by the type of loan as well as the lender.  Be very careful when qualifying a real estate agent to handle a short sale.

You do not have to be behind in your payments to qualify for a short sale.  Lenders are being trained to handle these situations and offer choices to their customers.  The best choice may be to call your lender and see what options they can offer you.  Check current interest rates on the Internet.  Make the lender work for your money.  Get at least three quotes, comparing interest rates, terms and closing costs.  Remember, you are still in control.

---------- FOLLOW-UP ----------

QUESTION: Hi Dennis,

Thank you for your informative response.

If I continue to make payments on my mortage and end up going through with the short sale, will the hit on my credit be the same as if I stopped making payments right now?  

Answer
I am not sure how a short sale would effect your credit.  The best thing to do is get in touch with w lender specializing in credit repair.  They may be able to give you advice on this while you are weighing your options.  A good local real estate agent should have a reliable contact in this area.  Call agents until you find one that can give you the name of a lender dealing with credit repair.

Your credit will be effected by late and missing payments.  A foreclosure will be much more harmful to your credit than a short sale.  Depending on the type of loan and the state you live in, you may not be able to obtain a new home loan for 3 to 7 years after a foreclosure.  A short sale will give you credit issues but many of these can be straightened out in a shorter amount of time.