Do I Really Need Legal and Tax Advice for a Short Sale or Foreclosure

short sale legal tax advice phoenix azWe hosted a short sale and foreclosure panel discussion yesterday. The panel members included Scott Drucker, a short sale/real estate attorney from Mack, Drucker and Watson, Eric Viavattene, a wickedly smart man from Dobbins Financial and Gerry Russell, the managing broker with Realty Executives Phoenix. Once again we were reminded how important it is to seek BOTH legal and tax advice when considering a short sale or foreclosure in Phoenix, AZ. Yes, we did the bold face thing. We really do mean this.

There is much confusion about the legal and tax implications of either a short sale or foreclosure. We’ve taken well over 100 hours of continuing education and specialty seminars covering short sales/foreclosure and every time we leave more knowledgeable, yet daunted by the complexities involved. The main area of confusion is the difference between the legal and tax implications. It is simply like night and day.

Just so you know, we are not going to attempt to explain the differences between the legal side and tax/IRS during a short sale or foreclosure in this article.. There are simply too many variables to cover, and we are not attorneys or tax professionals. That said, below are a few things both Eric and Scott mentioned during the discussion we want to pass on.

  • Short sales often offer more protection to the homeowner than a foreclosure. This is not an absolute though and should be explored by consulting both a tax and legal pro.
  • The Arizona Anti-Deficiency laws do not always protect a homeowner from IRS liabilities during a short sale or foreclosure. The anti-deficiency laws offer legal protection in specific circumstances, yet may not guard against an IRS obligation.
  • Insolvency is an IRS protection mechanism some may benefit using in conjunction with a short sale or foreclosure. However, you have to create a very strong and proper paper trail.
  • If going into foreclosure, many will benefit by having an appraisal performed prior to the trustee sale.
  • If you are considering bankruptcy along with a foreclosure or short sale, make sure and work with a great bankruptcy attorney and tax professional before you do anything. If you do things in the wrong order you may find yourself at risk.
  • If you have done a short sale and received a 1099 from the lender, don’t ignore it. Seek a qualified tax professional to insure it is reported properly to the IRS.

This is just a short list of the many items that came up during the 1.5 hour panel discussion. The bottom line reminder to us as Realtors is simple: Strongly advise our clients to seek professional counsel. This has always been our policy, yet it is good to be reminded.

You may be asking yourself how much consultation cost. We can’t speak for all attorneys and tax professionals, yet Scott and Eric shared their fees with us.

Mack, Drucker and Watson will sit with you, go over your situation and offer options for a mere $250.00. The folds at Dobbins Financial will review your circumstances and offer advice for $195.00. Thus, for under $500.00 you can be well informed BEFORE making a decision. To us that is cheap insurance.

AN IMPORTANT NOTE: Quality advice is the result of good information. Make sure you gather any and all loan documents and financial statements before meeting with your legal and tax counsel. We’ve read about people who forgot to mention they had refinanced their home or taken cash out in a home equity line and found themselves in dire straights later on.


There is simply no way most homeowners can proceed with a short sale or foreclosure on there own. The IRS tax code is miles long and the legal side of the equation is a moving target based on new rulings and changing laws. Your long term safely and happiness is worth a few hundred bucks.

If you would like contact information for Scott, Eric or one of the other professionals we’ve met along the way. please visit our page on the topic, the link is below:

Short Sale Foreclosure Attorney and Tax Professional in Phoenix, AZ 

The Urban Team at Realty Executives
7600 N 16th Street, Suite 100
Phoenix, AZ 85020

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