Legal & Tax Questions

Obtain Legal Advice

An attorney can advise you about your options and legal liability.

• To find out if you are eligible for free or low cost legal assistance, contact a legal aid organization in your county or one of the organizations listed here.
• Contact the Lawyer Referral Service in your county where you can consult with an attorney for a small fee for a half-hour consultation.
  Maricopa County (602) 257-4200
  Pima County (520) 623-4625
• Attorneys who are State Bar Real Estate Law Certified Specialists can be located here.

Obtain Tax Advice

• For Mortgage Forgiveness Debt Relief Act and Debt Cancellation tax information click here.
• Attorneys who are State Bar Tax Law Certified Specialists can be located here.

What is Bankruptcy

If you are considering bankruptcy as an option, consult with an attorney that specializes in bankruptcy cases (Click here for the AZ Bar)

Access the Arizona Bankruptcy Court self help information by calling 866-553-0893 or click here.

Consult Legal Counsel

The importance of competent legal counsel to help you determine whether a short sale is the best option and to advise you during the short sale process cannot be over emphasized. See the legal resources listed on page 2 or click here

Understand that a Short Sale May not Discharge the Debt

Even if a lender agrees to a short sale, the lender, the VA, or the FHA may not agree to forgive the debt entirely and may require you to pay the difference as a personal obligation. This outstanding personal obligation could result in a subsequent collection action. For example, a lender may accept the short sale purchase price to “release the lien” on the property as opposed to agreeing to accept the purchase price as “full and final settlement of the debt” on the property. Therefore, be certain of the terms of any short sale before making a decision, consult an attorney regarding whether the lender is entitled to pursue a deficiency judgment and obtain any debt forgiveness agreements with the lender in writing.

Obtain Tax Advice

A short sale in which the debt is forgiven is a relief of debt and may be treated as income for tax purposes. The Mortgage Forgiveness Debt Relief Act of 2007 created a limited exemption to allow homeowners to pay no taxes on debt forgiveness; however, only cancelled debt used to buy, build or improve a principal residence or refinance debt incurred for those purposes qualifies for this tax exemption. For more information on the tax consequences of debt relief seek professional tax advice and click here.

Be Aware of the Impact on Your Credit Score

The impact of a short sale on your credit score depends upon a variety of factors, including late or missed payments. A short sale may appear on your credit report as “pre-foreclosure redemption,” “paid in full for less than full balance” or other similar term.

Understand That There May Be a Waiting Period Before You Can Buy another Home

Your ability to qualify for a loan to purchase another home after a short sale will likely be impacted by a short sale and there may be a waiting period before you can purchase another home.