selling rental property

My husband and I are retired and have a rental condo unit that we would like to unload. It has become increasing difficult to keep it rented and the mortgage is upside down. We are not trying to ruin our years of good credit and it was suggested that a Short Sale might be the best solution. We are not looking to make a profit (because we know we won’t anyway). We just want this burden lifted. We live in another unit in the building that we want to maintain. Is a short sale a possible option?

Terry Says:  That depends on your lender.  And it depends on the laws of your state.  A short sale is basically an agreement by the lender to let you sell the property for less than the amount owed.  If it were your primary residence, in most states, the lender would likely let this happen — and would not come back at you for the unpaid balance of the mortgage. AND, because of a new law passed during the housing crisis, if it were your primary residence you would not be liable for taxes on the amount forgiven, as if it were ordinary income.

BUT, since this is an investment property, all of the above are a possibility — most especially the part about the amount written off being considered taxable ordinary income to you!  I suggest you contact a real estate attorney in your state before proceeding.  At least you will know the true extent of the financial consequences, if the bank does agree to a short sale.