Legal Question in Real Estate Law in Maryland

Hello. I am a Maryland barred attorney and practice in this area. Generally speaking, a "short sale" involves the lender (mortgage company) agreeing to take something less than is owed to sell the property. It should but does not always mean that the borrower who took out the loan is off the hook -- if you are negotiating with a lender do not assume that an agreement to release the lien releases you from personal liability. However, a short sale that releases the borrower from liability takes care of the debt once and for all and leaves the borrower without any continuing responsibility or need to go through foreclosure.

If done properly, the biggest advantage is that you no longer have a mortgage obligation and yet do not have a foreclosure or bankruptcy on your credit. Being in default and going through a short sale is not exactly a positive mark on your credit but some experts suggest it is the lesser evil and may possibly make it easier to obtain credit in the future. Before finalizing any short sale, you should get competent advice and make sure that you will not be charged income for any debt forgiveness. Under standard IRS rules, when a lender wipes away debt you technically have "income" in the amount of the wiped out debt and should pay taxes on that amount. However, a recent federal law says that many homeowners can exclude this from income. The rules are a bit complex and I strongly encourage you to get specific advice and attorney review of the documents before finalizing a short sale.

Please also realize that a short sale is not an automatic right - the lender does not need to accept any short sale and this process often involves a fair amount of negotiating and waiting to get lender approval. The specific facts of your circumstances, including who the lender is, why you are in default and the general state of your finances will affect the likelihood of a short sale going through.