When handling short sale listing, an agent can face consequences for not properly counseling the client. An uninformed client can lead to potential ligation when the short sale effects their credit or their taxes unfavorably. Often the Seller is unaware the cancellation of the mortgage debt may be considered ordinary income by the IRS and taxed.
In this scenario, the seller now owes taxes to the IRS. The IRS can now file a lien against the seller which will touch any property that the seller owns. A tax lien swill show on the sellers credit report and they will be in worse shape credit wise than if they had gone the foreclosure route. A client is well advised to seek appropriate counsel from appropriate legal counsel.
Many experts may argue that a Short Sale is a better route to take. As an Agent, you should direct your clients, in writing, to speak to their attorney and accountant. These professionals can help your client determine what a short sale will mean for their individual circumstances.
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