Does anyone know If I were to do a short sale on my house as opposed to letting it foreclose, will I get a 1099 for the deficiency?
Wells Fargo has been stringing me along for over a year now and just keeps denying modifications.
I DO understand the credit differences and what it will do to mine.
A Realtor is telling me I would qualify for the “HAFA program”
I’m in California
Thanks,
–Mike
OK I’m just pulling this off the top of my head so its not 100% correct but there is The Mortgage Dept Relief Act bla bla that does away with most deficiency judgments and if it doesn’t then negotiate that it be waived. The lender has to see that its better off doing the short sale than a full foreclosure. I have the IRS law/act I’d just have to go find it. Fortunatly for me I hire this part out. Herbster
The Mortgage Forgiveness Debt Relief Act, will help you for tax reasons on the portion forgiven through a short sale or foreclosure, not the deficiency judgment itself that the lender might go after. You report the amount of debt forgiven on IRS form 982 and attach it to your income taxes for the year in which the debt was forgiven.
Now, I have seen very few cases where the lender goes after a homeowner for a deficiency judgment - it would most likely happen only if you have other assets, considerable income, and so on.
It does sound the the relief act would help me but the concern for Wells Fargo coming after me has me worried since I do have quite a few other assets including one of my investment properties which I also have another Wells mortgage with.
In California, generally speaking, they are no longer allowed to pursue deficiency judgments.
http://hubpages.com/hub/ShortSale-SellersPOV
Beyond that, if you do qualify for HAFA (good luck) … there is also no deficiency judgment.
In California it’s really difficult to create a deficiency judgment as when you elect to borrow you have most likely elected to use a non judicial foreclosure method.
The five situations in which a deficiency judgment is prohibited?
A lender may not pursue a deficiency judgment against the borrower should the lender opt to foreclose by a trustee’s sale foreclosure.
If the purchase money loan for any type of real property is financed by the seller and secured by that same property, the lender/seller may not obtain a deficiency judgment against the defaulting borrower/buyer.
If the loan is obtained to purchase a residential 1-4 unit dwelling all or part of which is owner occupied and the loan is secured by that property, the lender may not obtain a deficiency judgment against the defaulting borrower. This loan is entitled to “purchase money” protection. Note, however, that should the buyer refinance the home, the new loan is no longer “purchase money.” Thus, the buyer would lose the protection against a deficiency judgment in the event of a default if the lender elects to use a judicial foreclosure process.
An action for a deficiency judgment must be brought within 3 months from the time of judicially-ordered sale.
A deficiency judgment is limited by the difference between the amount of the indebtedness and the fair market value of the property, unless the actual sale price exceeds that value.
Holders of a junior deed of trust (second, third, etc.) should note that if the “wiped-out” junior lien is not purchase money or seller carryback, then the junior lien holder may sue on the note and the borrower on the junior loan may be personally liable.
Thanks for the great info…
Is a Heloc loan considered “Purchase Money” ?
generally, no. although if you did use the funds to purchase the property, then I suppose it could be. I am just not sure how you would have done this. Typically you need to own the property already to do a HELOC
The main advantage of short sale is that you’re safe from foreclosure, which damages your credit more than a short sale does. it keep your credit options intact as it limit its the impact on your credit report .Short sale also work best for borrowers who have little or no equity in their homes, as their value cannot cover what is owed on the loan.
Other things to consider… 1. Many employers are using credit scores as a proxy for character references so going through with a foreclosure may seriously limit your job prospects. 2. Your credit report will eventually clear up but the public records and Google are forever.
FWIW short sale also negatively affects credit score in a fairly significant way. Both are red flags to lenders that you were unable to meet your obligations. Short sale is only marginally “less worse” than a full blown foreclosure.
If you can not make your mortgage payments and your house is now worth less than you owe on it, foreclosure may not be your only fate option.The seller of mortgage debt without facing lender bankruptcy.The s undertakes a loss it considers minimal, without going through a foreclosure and end up with a property unsaleable.
Keep intact their credit options and limit their impact on your credit report. Short sales for borrowers who have little or no home equity for your best, it can not hide what is the value of outstanding loans.
Is a short sale any better than a foreclosure?
Anything is better than a foreclosure. Now whether a short sale is your best option is something we can examine by asking a few questions.
1.Do you want a fresh start?
2.Would you like a way to settle your debt with the lender for pennies on the dollar?
3.Are you interested in buying a home again in the near future?
I’ve never heard of a 1099 after doing a short sale. What happens is that it will show up on your credit as settled but not paid in full. The crazy thing is that often the banks will delay while people stay in the home for free for a year or more. I don’t understand banks, their best option would be to modify the loan, otherwise short sale quickly as they get more for a short sale then a foreclosure and in less time. It all seems backwards and illogical.