Times are tough all over, and the economy is very uncertain. You might be able to find a new job somewhere else if you didn’t have a mortgage that you’re rapidly becoming unable to afford.
Unfortunately, you haven’t lived in your home very long, and you didn’t have a large down payment when you bought. You owe more than your home is currently worth, so you’re thinking about asking the bank to allow a “short sale.”
While it is true that a short sale doesn’t damage your credit as significantly as a foreclosure, that doesn’t mean that your credit won’t be seriously impaired, just the same. You may still have trouble qualifying for a new loan for quite a while.
There are other risks to the seller from a short sale. Buyers are often reluctant to make an offer on a short sale because the closing process is extremely complicated. Deals sometimes fall through at the last minute because the lender balks.
Your biggest risk, however, is that the lender won’t be content to get what the house is worth. They can — and often will — sue the seller after the short sale is complete for the difference between the sale and the mortgage. That can leave you saddled with the debt you sought to escape. Even if the remainder of your loan is forgiven, you can end up owing capital gains taxes that you weren’t expecting.
If you’re burdened by too much debt and a mortgage you can’t keep paying, don’t try to handle the situation on your own. Talk to a bankruptcy attorney about your options.