No one can predict what Congress might do. Short sales and bankruptcy accomplish two different goals. Short selling your home ends your legal responsibility to own property. Bankruptcy eliminates debts that you owe. Some realtors that handle short sales include a consultation with a local real estate attorney in order to advise you of the legal consequences of a short sale. Unfortunately, there is no "one size fits all" answer to what a short selling your place might do in your situation because every contract for a short sale is different. Hope this perspective helps!
Hard to say. The Mortgage Forgiveness Debt Relief Act has been continued at every previous expiration but obviously at some point it will end. A common misunderstanding is that this law affects the forgiveness of the mortgage debt when in fact it applies to the forgiveness of federal income tax on the debt that is forgiven. However, other ways of avoiding taxation exist, including insolvency. Additionally, you should consult with a CPA or other tax professional as even if that law expires, some portion of the forgiven debt that is attributed to you as income can be offset but the decreased property value.
Guarantees? About what Congress will do?
Only from a fool.
At the least, you should have an attorney review the paperwork before you sign the shortsale paperwork. I have seen multiple cases in which realtors who say, "You don't need an attorney; I'm good at short sales" have committed legal malpractice while practicing law without a license, leaving the borrower liable.
I would never guess what congress may do. That being said, the Mortgage Forgiveness Debt Relief Act has already been extended twice and I doubt it would be extended again.
A short sale and bankruptcy will have similar outcomes but each need the assistance of an attorney. If you are short selling your home you need to make sure the deficiency is waived, otherwise the lender can come after you for the difference between what you owe and what the property ultimately sells for. If the property sells by the end of this year, there will be no tax implications...if the property is your residence. If the property is a rental, investment property, or simply not your primary residence you will need to work something out with the IRS or pay the tax on the amount forgiven regardless of the year the sale closes
Through bankruptcy you can surrender the property to the lender which will ultimately cancel the debt. In short, the lender nor the IRS will be able to seek either a deficiency judgment or taxes from you. There are other possibilities depending on if you file for Chapter 7 or 13 bankruptcy, your scenario, and your intentions with the property.
We are almost in June. If you are going to be short selling your home, then you need to start the process soon to ensure the sale closes by the end of the year, or file for bankruptcy if it is necessary. In either scenario you should contact an attorney, contact my office for a free consultation.
If you're considering short selling your property, you can do this on your own, but it's best to seek a law firm that has close ties to a real estate agent. The lender can still deny you a short sale, but the good news is you're not worried about a waiver of liability. However, you still need to consider tax laws and if this is your primary residence or a rental.