THE UNHOLY TRINITY (Continued)

You will have to work closely with your real estate agent to insure that your lender receives all of the documents and information that it needs in order to evaluate the viability of a short sale. If you take the appropriate steps and your lender approves a short sale, there are important consequences to understand:

• A short sale may affect your credit – you are asking that your lender accept a lesser amount than is owed in satisfaction of the loan it made to you. Your lender will report this fact to credit agencies accordingly.

• You may have adverse tax consequences related to a short sale. In general, the difference between what you owe and what your lender actually receives from closing is called “forgiven debt.” For tax purposes forgiven debt is treated as income. There are provisions in the federal tax code that may mitigate or eliminate adverse tax consequences. You should consult a tax professional for advice.

• You may be asked to sign a new promissory note as part of a short sale obligating you to pay back all or a part of the deficiency.

• Your lender may agree to release its lien against the property (thereby allowing you to sell) but may not agree to forgive the debt. If your lender is not specific about its intentions after a short sale, you should consult legal counsel to discuss and evaluate potential future consequences.