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Short Sales and Foreclosure Lawyers in San Antonio

Many homeowners are in trouble with their mortgage, particularly couples in divorce who no longer want to keep their marital home, and often explore the option of short sale or foreclosure.

Short Sale

For homeowners who no longer want to keep their home, there are alternatives to bankruptcy or foreclosure proceedings. One of those alternatives is called a “short sale.” A short sale is the sale of the home for an amount that is less than what is owed on the mortgage. The lender agrees to accept less than the amount owed on the house and will often forgive the remaining balance.

While the lender can forgive the remaining balance owed on the mortgage, the short sale agreement does not automatically release the borrowers from their obligation to satisfy the balance. There are no guarantees that a lender will not legally pursue a borrower for the difference between the amount owed and the amount paid unless it is expressly written in the short sale agreement. It is important to get that agreement in writing, making sure that it specifies in the terms of the agreement that no recourse is available to the lender to pursue the debtor to satisfy the debt. Additionally, not all lenders will accept a short sale offer or a discounted payoff, particularly if it would make more financial sense to foreclose on the home.


A foreclosure is a legal process whereby a mortgage lender attempts to recover the balance of the mortgage by forcing a sale of the real estate. This is done in an effort to recoup their collateral and is written into all mortgage documents. A foreclosure is usually brought in response to a borrower who has gotten behind in their mortgage payments or has stopped paying their mortgage all together.

Foreclosure proceedings can vary from state to state. Almost every state provides for some period of redemption or a certain length of time to cure the default. Additionally, foreclosure can result in credit consequences that homeowners are often not aware of.

Tax Consequences

Short sales can trigger capital gains taxes and cause canceled debt to be treated as income. When a mortgage is discharged in a short sale or in a foreclosure, there are regulations that require the lender to issue a Form 1099-C or what is commonly known as a “Cancellation of Debt” form. The form shows how much debt was forgiven or canceled, and this forgiven debt can be treated as ordinary income by the Internal Revenue Service (IRS). This added tax liability often comes when divorcing couples can least afford it.

To counteract the wave of short sales that have taken place due to the recent poor economy, Congress created a program to address the tax consequence of the forgiven or canceled debt. The program started in 2007 is known as the Mortgage Forgiveness Debt Relief Act and Debt Cancellation (MFDRA). It allows taxpayers to exclude forgiven or canceled debt up to $2 million on their principal residence if married and filing jointly at the time of the sale, or up to $1 million if married and filing separately. Debt that has been reduced through a mortgage restructuring or modification, as well as mortgage debt forgiven in a short sale or foreclosure, qualifies for tax relief under the MFDRA.