Having been hit hard by the recession, many
Baby Boomers find themselves upside down on their mortgages.
A short sale to get from under a home that that has lost
considerable equity may seem like a good answer to Boomers
seeking to financially reposition themselves for eventual
retirement. However, there are "gotchas" to this
solution...and they can come back to bite you!
The good news is that it is getting easier
to accomplish short sales. New government programs offer
incentives to both the first and second lenders on homes to
participate in a short sale. Lenders are also subscribing to
programs wherein they will respond within ten days (instead
of months, if ever) with an acceptable short-sale price when
requested. Bottom line, short sales are becoming more
streamlined and feasible. This should help to clear the
inventory of foreclosures, avoid some future foreclosures
and offer a realistic alternative for Boomers caught up in
the fallout of the Great Recession.
But like anything else that sounds too good
to be true, short-sales are mine fields full of hidden
pitfalls that can negate their apparent benefits:
If you have a second loan on your home
and the lender does not commit in writing to forgive any
balance remaining from the short sale, then they can
come after you for years to collect the shortfall. And
that is just what they are doing. Many lenders are
selling these "bad debts" to bill collectors for pennies
on the dollar. Just when you thought you could start a
new life, these nice people are going to hound you for
up to ten years to attempt to collect huge profits.
If you used part or all of a second loan
on your home for cash out luxuries like a vacation,
travel, a new car, timeshare or whatever, then the IRS
wants taxes on that amount. This is true for cash-out
refinances too. The only portion that is tax-free is
that spent on fixing up your home (which increases your
home basis for tax purposes). Disposing of troubled
vacation homes and investment properties bare similar
So, there is no escaping the tax man.
Upside-down Boomers who thought they were taking responsible
steps to handle unexpected debt brought on by the recession
are now awakening to a second act of their long nightmare.
Sometimes, letting a property go to foreclosure or declaring
bankruptcy (if you can financially qualify) is the best
Boomers are urged to contact a knowledgeable
tax attorney before taking any steps to resolve a
financially-troubled property. If feasible, it just may be
that holding onto your upside-down home by renting it out
for several years until a break-even situation can be
achieved is the best answer.
Unfortunately, there are no easy resolutions
for Baby Boomers who have seen their retirement dreams
shattered by the recession. Nonetheless, the more knowledge
you gain, the easier it is to develop a realistic "Plan B"
for eventual retirement.
About The Author
Al Kernek is a Internet marketing consultant, author
and Baby Boomer. Learn more about issues facing Baby Boomers seeking to retire on a fixed income at
www.BabyBoomerLifeboat.com which is also an online portal to Websites containing valuable information and resources for Baby Boomers.