can anyone confirm this…if either a short sale or foreclosure is done in MO, the lender can not go back on the homeowner for a deficiency judgment. However in KS, the lender can go back on the homeowner?
In Missouri a lender can not go back after a borrower for a judicial judgement!
In Kansas a lender can go for a judicial judgement against the borrower and seek a court judgement to garnish wages or sieze other assets!
Remember until the end of 2010 because of the Mortgage Relief Act passed by former president Bush owner occupied properties are exempt from deficiency judgments. There are exceptions for investment property and 2nd homes but not many. If the seller is faced with a deficiency in that situation if they can prove insolvency they can avoid the tax deficiency.
Now this is what I know of the act you are referencing:
The Phantom Tax Relief Act only covers the relief of having to pay income taxes on the loss of the short sale for homeowners. It excludes investment or 2nd homes.
It doesn’t cover if the bank decides to come back on a homeowner with a judgment for the loss they took on the loan. The bank still has that right.
Here is an article about it:
Daily Real Estate News | October 5, 2007
House Votes to Eliminate ‘Phantom Tax’
The U.S. House of Representatives voted on Thursday to get rid of a tax burden for homeowners who have had a loan forgiven or foreclosed on their home because they were unable to make their mortgage payments. The Mortgage Cancellation Tax Relief Act, H.R. 3648, passed by a vote of 386 to 27. Similar legislation is making its way through the Senate.
Since the early 1990s, NAR has supported such measures to eliminate the “phantom tax” on financially- strapped home owners.
“Congress made a good decision that will affect many Americans who find themselves in a truly bad situation,” says NAR President Pat V. Combs. “Changing the IRS code is an issue of fundamental fairness. It would relieve a tax burden at a time when an individual or family has experienced a true economic loss arising from the sale or loss of their home. These families are already in financial distress and are most likely unable to pay additional taxes.”
The current tax code requires a lender who forgives debt to provide a Form 1099 to the IRS stating the amount the borrower has been forgiven. This disclosure applies whether it is a short sale, foreclosure, and deed in lieu of foreclosure or any similar arrangement that relieves the borrower of the obligation to pay some portion of their debt. If the property is sold at foreclosure or is sold for less than was borrowed, that difference is considered income and is subject to the tax.
H.R. 3648 would ensure that any amount forgiven on mortgage debt secured by a principal residence would not be taxed. The legislation has a provision to safeguard against abuses. That provision is similar to one that already exists for commercial real estate owners and would treat commercial and residential property equally.
"This is not only about the subprime turmoil we are currently experiencing, " Combs says. “This is also about families who have lost their home or a need to sell that home for less than the amount owed on their home mortgage because of job loss, divorce, health issues, a decrease in the value of the home or other unfortunate circumstances. Clearly it is unfair to tax people on phantom income when they most likely have no cash with which to pay the tax.”
In other news, another bill has been sent to the House Judiciary Committee that would revise the bankruptcy code to allow judges to order mortgage lenders to ease terms for homeowners in bankruptcy proceedings. Currently, mortgage lenders can foreclose against a homeowner in default 90 days after the filing of bankruptcy.
— REALTOR® Magazine Online
Yes and No
For the 1st part of my statement…yes
For the 2nd part NO
The seller would actually be able to file IRS form 982 I believe you should actually check out Al Aeillo for the exact case study. If you can prove insolvency meaning that your broke. A tax expert should be able to guide you on how to write the tax deficiency off.
Just for the record…I started this topic out to find out of either KS or MO could file a deficiency judgment against the homeowner on the deficient amount from a short sale.
I have since been educated on this and both KS and MO are in fact recourse states. The ONLY states that are non-recourse are CA, MN, MS, MT, ND and WV.
Therefore your quote above on Missouri not being able to go back after the borrower is an error.
Missouri Foreclosure Law Summary
Quick Facts
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Judicial Foreclosure Available: Yes
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Non-Judicial Foreclosure Available: Yes
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Primary Security Instruments: Deed of Trust, Mortgage
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Timeline: Typically 60 days
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Right of Redemption: Yes
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Deficiency Judgments Allowed: No
In Missouri, lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or non-judicial foreclosure process.
Judicial Foreclosure
The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, your home will be auctioned off to the highest bidder.
Non-Judicial Foreclosure
The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A “power of sale” clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of the their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the “Power of Sale Foreclosure Guidelines”.
Power of Sale Foreclosure Guidelines
If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the foreclosure may proceed as follows:
A notice of sale must be mailed the borrower, at his last known address, at least twenty (20) days prior to the scheduled day of sale. The notice of sale must also be published in a newspaper within the county.
The sale is conducted by the trustee at public auction for cash to the highest bidder. Anyone may bid, including the lender. If the lender is the winning bidder, the borrower has one year (12 months) to redeem the property.
I am not sure why you posted the Foreclosure procedures and laws for KS & MO. My topic is about DEFICIENCY JUDGEMENTS ONLY. I know the foreclosure the procedure.