We are thinking about doing a 1031 exchange and purchasing a home on a short sale. The home is not in foreclosure yet…will the bank accept a short sale and if they do, who will be responsible to pay the outstanding amount of the loan balance? How do you know how much to offer the bank? $554 is owed on the loan…the loan is only 4 months old.
The bank eats the loss but it is usually less that going through the foreclosure process what with lawyers, holding costs, and loss of use of their money.
The original owner may, however have a tax liability on the loss.
Keith
thanks for that info. My fear was tht the bank would impose a judgement for the outstanding balance. How is the tax liability calculated?
The lender issues the previous owner a form (someone can help me with the form number, please) reflecting the amount that they “ate”. The previous owner is supposed to declare that as an “income” on their taxes. The amount of the tax depends on the tax bracket that the previous owner is in.
Keith
1099 would be the name of that despised piece of paper…
Regards,
Dave
Thanks for the great info…again! Did I read something on one of the posts that stated a short sale can only be done if the foreclosure process has begun? These kids are about to go under but foreclosure has not begun. House may be listed in the next day or so. So…for us to call the bank today and throw out a low offer would be a waste of time…right?
The house needs to be in foreclosure status, before you can do a short sale. Also, with most lenders they want the property to be listed with a real estate agent for at least 90 days. If the short sale is accepted, the lender will send a homeowner a 1099, that the homeowner files on their taxes. If the homeowner filed bankruptcy or insolvent, then they do not need to file the 1099.
Cliff
All of you have been a huge wealth of information. Many Thanks! Michelle
ps…and yes…they are filing a Chapter 13 so the 1099 may no have to be filed.
Back Taxes or tax liability (can not) be filed with a bankrupty of any sort.
Bummer…maybe they can make payments to the IRS if needed ? They have only been in the loan since November.
They were the ones that signed for a 554,000 dollor loan.
Try not to feel bad because they got in over thier head.
On that type,or that size loan they should’ve had at least 3-6 month reserves-
meaning at least 3-6 months of Mortgage payments set aside incase something happened,
like loss of work or whatever.Suprised they got the loan without it.
However it may have been or sounds like a debt consolidation loan they got.
An attempt to get them in a better sittuation at any rate.
This being the case maybe they should have filed chpt-13 before consolidating so they could have tried to keep the house without the other debt.
Now best thing for them might be to loose the house and all the debt with it for a fresh start.
When are they considered in the foreclosure status ? is it when their house is 11-21 days from trustee sale ?