Though Arizona’s housing market is recovering faster than most states in the nation, prices for homes are still high and inflation remains to be a concern for most potential homebuyers. Houses are like any other functional consumer good, and their prices are affected by short-term supply and demand as well as long-term inflation.
It can be surprising to learn that after debts owed to a bank or individual are canceled, income taxes can still remain. This issue comes up frequently in connection with escaping distressed real estate. Following a foreclosure or short sale, it is not uncommon for a bank to issue a 1099 to the borrower and the IRS indicating the amount of debt canceled. The amount of debt cancelled may result in significant tax liability.
Since the real estate market began to decline in 2006, followed by its dramatic crash in 2007, I have counseled many hundreds of individuals needing to escape distressed or underwater properties. There are several common elements in the concerns of those homeowners. Some have wanted to attempt a short sale, others preferring to simply allow foreclosure to occur. Over the past few years I have become increasingly convinced that most owners’ concerns are based on three crucial questions which must be answered when determining whether or not it’s possible, or even advisable, to attempt to dispose of a distressed property.
Due to the unprecedented real estate market, many people are facing the very difficult question of whether to let their underwater homes go by short sale, foreclosure, or surrendering the home during bankruptcy. In many cases a short sale may be the best option; however, in cases that involve recourse loans, it may be in your interest to surrender the home through bankruptcy.
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