Profile picture for user8582273

If I sell my home at a loss, can a relative pay off what remains on the loan?

  • October 10 2012 - Medina
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Answers (4)

Profile picture for hpvanc
I agree with Socal, but would add if you are paying the money back, it could be setup as a personal loan (with a Note to verify that it is actually a loan with a repayment plan) and may avoid gift taxes.  However if the amount is more than $100K and they are charging below market interest check the rules for Gift Loans.
  • October 10 2012
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Profile picture for SoCal Engr
Yes, they could. Essentially, they could gift you the money to bring to escrow to make up the difference between the sale price and the loan balance. There could be tax consquences for both you and the relative, but it could be mitigated by staying under the IRS limits for exclusions on gift taxes (which you can read about here).

Depending on your specific situation, the question I have is "why?".
  • October 10 2012
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Profile picture for Outer Banks N C
You can sell your home for less than you owe but you have two choices to do so.

1. You must get the banks (lenders) ok to do so because they will have to accept less than you owe and so they will lose money to allow it. This is called a short sale and they are difficult.

2. You can go to closing to sell and you can bring enough money to add to the sale amount to pay off the loan in full. It does not matter if you bring the money or your family brings the money. It just has to be there and it must have come from a verifiable source (not a bank heist last week).

Tim
  • October 10 2012
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It sounds like you are referring to selling on a short sale but I'm not sure of your situation without enough information. This can be a complex subject.

If you are working a short sale and the lender approves the sale but files a deficiency judgement then your relative can pay the deficiency. There are tax issues that may need to be considered though.

Because of the complexity of the issues you are best advised to seek legal and tax advice from licensed professionals in those fields.

  • October 10 2012
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