That is a great question. First this information is for information purposes only and if you are facing foreclosure you should consult with your attorney and accountant.
In my opinion Short sales and mortgage modifications are better alternatives than a foreclosure for the following reasons:
1. A foreclosure impacts your credit and credit history for 10 years and must be documented on all future loans for 7 years.
2. Banks will pursue a deficiency judgment against you. Short sales forgive the deficiency.
3. In some cases Employment, both future and current and special security clearance jobs will be impacted with a foreclosure.
4. Credit score 250 to 300 points with a foreclosure. Much less with a short sale
5. Credit can be repaired and your ability to purchase a home can occur in about 2-3 years versus 7 years with a foreclosure.
6. Short sale is typically noted on your credit as "paid in full, settled" or "paid as negotiated."
7. Short sales are being promoted as a preferred alternative to foreclosure by the Obama Administration and the Making Home Affordable Program. There are major changes coming down the pipe for sellers and lenders.
The 1099 is a big misconception with short sales. Every real estate transaction requires a 1099. Regardless if it is a standard sale or a short sale. This must be discussed with your accountant. But, your loss typically is more than the gain that the bank reports on your short sale. If you do owe taxes on the forgiven debt it can be negotiated. Again work with your accountant and lawyer.
If you want more information I have lots of info on my website and our most recent radio broadcast on 30a Radio discusses this topic. It airs Fridays at 9am. Ping me and I will send you the link.
I can also point you to some great places to do research about short sales and foreclosure alternatives including HUD, HopeNow and Making Home Affordable websites.
Thanks.
