Profile picture for janwar

If I short sell my home for less than I owe do I walk away debt free?

  • June 16 2009 - Montclair
  • 0
    0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Be a Good Neighbor. Be respectful and on-topic. No spam or self-promotion! See our Good Neighbor Policy.

 
 

Answers (30)

Hello Janwar, that will depend if your loan is the original purchase money loan (the loan you bought the home with) or if you performed a cash out refinance.  I agree with Sharon, you should consult with a tax professional. You will be issued a 1099 regardless if you short sale or foreclose.  When considering listing your home for a short sale, make sure the agent you select has closed short sales successfully.  Ask them to provide you with the short sale approval letters from previous sales.  You want to make sure they know how to negotiate the short sale on your behalf and have your best interest in mind.  

I hope this info helps.  Let me know if you have any other questions by visiting my profile.  

All the best!

Ryan Smith
Lic # 01334440
  • November 01 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for Sharon Lewis
A lot of good recommendations here, but talk to your accountant or a tax attorney about your particular case.
Sorry to hear you are going through such tough times...
  • November 01 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for blank screen EXILED
So, you are saying they are only asking for 5% to 20% of the difference, which is in the same ballpark as the 10%.

As for the 100%, yes that is what you implied they were being offered to sign before; but you are correct, you didn't state how much the promissory note was for.  But I had no reason to assume it was a $10 promissory note.

In California we don't need to worry about such things as the lenders cannot get a deficiency judgment on the first mortgage for the owner occupied housing unit unless it was a refi where cash was taken out for other purposes.  And the question was about California, and the question is 16 months old.

In any case, buying in California is less risky than buying in Nevada.
  • October 20 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Pasadenan...you don't get it!  the mortgage servicers/short sale negotiators are asking sellers to bring cash to the table and or sign a promissary note at 0% interest when they are able in amounts of $5,000 - $20,000 +.  They are upside down by $100K or more and the offer is less than what they owe.  The properties can only sell for what they're worth today and what it appraises at.  I'm just telling you what they're doing at the final hour to allow the short sale to go through...if they can get away with it. It is up to the seller to agree to it or not to agree to it...there are both today depending on how badly they want out..
  • October 20 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for blank screen EXILED
So, if the deficiency judgment amount is worth 10% to debt collectors on the open market, why would anyone want to sign a promissory note for 100% of the remaining debt, even if at no interest?  Isn't the whole point of a "short sale" to have the lender take the loss on the principal rather than the owner?

And since short sales in Nevada give the lender 6 years to file the deficiency judgment law-suit, as compared with only 6 months for a foreclosure (except the 2nd, 3rd, 4th... mortgages that also have 6 years as "unsecured debt"), why wouldn't one want to negotiate better terms for the lender to give up their deficiency judgment rights, such as 10% of the remaining principal with no interest, paid over 20 years?

Or why not just let it go into foreclosure to reduce the deficiency filing time to 6 months?

(No wonder buying in Nevada is more risky than buying in California).

Fortunately, the original poster was asking about California, and not Nevada...  But the question is 16 months old!

But as Victor pointed out, no Federal Tax on the "income" of the difference of the principal to short sale amount for short sales up through 2013...

But one can't forget about all the "exceptions" and special cases that Roberto pointed out.  You can't spend all the equity on cars, vacations, dinners, shows, clothes, and education and expect to have that debt just forgiven...
  • October 20 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

  • October 20 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

NO! In all states you will receive a 1099 for the amount you were short leaving you to pay the taxes on it as if it were income.

Depending on the state in which you live you may have a deficiency judgment placed against you fro the entire amount leaving you owing the amount to the lender. In my state of North Carolina deficiency judgments last for 10 years and can be renewed indefinitely. If one is placed, you can forget about ever getting another bank loan until you settle up regardless of where you live.

 

Sit down with a lawyer who specializes in real estate and your accountant/financial adviser and ask them what they suggest. Here in North Carolina I would suggest clients consider bankruptcy or foreclosure rather than a short sale.

  • October 20 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

The real answer is, it depends.  Hopefully your agent does a good job and does not play all their cards at once.  Thus, if the lender comes back making demands, there are ways around it without you owing money.

Most lenders will waive any future rights.  Some of the larger ones will not generally.   BOA is notorious for refusing to write off the loan and leaving themselves the possibility (5 year statute of limitations in FL) to come after the homeowner.  That being said, we just closed on one where over $1M was forgiven and BOA did not reserve the right to go after the money.

Get someone that really knows what they are doing and your chance of them leaving the door open for a deficiency judgment, asking for a contribution at closing or asking for a promissory note will be greatly reduced.
  • October 20 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for SoCal Engr
@ Linda...

And your point is?

There is no requirement for the lender to sign off the note. I believe the article did say that many lenders recognize that there is little to be gained by pursuing the issue further. However, it also said that some lenders (<10%) will pursue the issue.

So, it's not a slam dunk that there will be no deficiency judgement.

Play with all the cards in the deck, if you're able. Not just the ones that make your hand.

p.s. Please point me to anything that shows that what I initially posted was incorrect. The 6-month period, even in the bill you link to, is specific to foreclosures - not short sales. The 6-year period I quoted from the article is specific to short-sales, and the article is very distinct about making the distinction.
  • October 19 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

good nite...read it again tomorrow when you're less tired...when the lenders sign off paid as agreed for less than owed...there is no deficiency judgement on a primary!!!!

  • October 19 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for SoCal Engr
@ Linda,

In re-reading the linked sources (yours and mine)...

The 6-month time limit is specifically applied to foreclosures. In the event of a short-sale, the 6 year time limit applies (try reading this link this time). The article specifically addresses both the foreclosure and short-sale scenarios, and identifies the applicable governing statutes.

No one is disputing that short-sales are allowable, just whether or not the seller can walk away "free and clear".
  • October 19 2010
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

it's a good thing you're not offering legal advice...what you initially posted was incorrect.
  • October 19 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

When there is a valid hardship, short sales are allowable on primary residences

  • October 19 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Good catch.

My eyes are too tired to read statutes tonight.
  • October 19 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for SoCal Engr

First, linking to your website is self-promotional spam (but then, you already know that), so that's been reported. You could have just linked to the actual document that you have buried in your ad.

For posterity (i.e., after your spam link is deleted), here is the link to the ammended Assembly Bill.

From what I read, the period has been set to 6 months, provided the money is purchase money for a primary residence, which the owner continuously occupied as a primary residence, and which has not been refinanced.

The "killer caveat" in the ammended bill?

"The amendatory provisions of this act apply only to an obligation secured by a mortgage, deed of trust or other encumbrance upon real property on or after October 1, 2009."

It never is a good idea to cherry-pick the facts you choose to present.

  • October 19 2010
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

I am not referring to a deficiency judgement...this is a new deal...they ask the sellers to sign a promissary note at 0% interest to allow the sale to go through...  It is up to the seller to agree to it or not agree to it...based on their particular circumstances.  You can't get blood from a stone!  Vegas has a lot of stones that have bled out already.  I must have met 25 folks this weekend who all lost between two and three homes each and are all renting for at least another 2-3 years.
  • October 19 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Well technically you are both wrong.

In some circumstances lenders have up to two years to file a deficiency judgment. (Portion of the statute regarding multiple properties in various stages of foreclosure).

But in probably most cases in NV, lenders have 6 months to file a deficiency judgment.

What might be more relevant is how long lenders have to collect that judgment before the debt is deemed noncollectable by statute.
  • October 19 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for PeggyFongChen
Rather than walking away, best way is to call your lender to discuss and most lenders these days will work with you on a program that fits you.  It all depends how much you owe, I had an experience that I helped someone to sell their homes which turned out to be "unnecessary for a short sale", talk to a short sale listing agent is another options, you should see a lot of options out there, you are not alone, many are with you these days.
  • October 19 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

[link removed by moderator due to self-promotion] in actuality they have six months...the object is to get the lender(s) to accept paid as agreed for less than owed...which goes on the sellers credit report
  • October 19 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

in actuality they have six months...however the object is to get the lender to sign off paid as agreed for less than owed...which goes on the sellers credit report
  • October 19 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for SoCal Engr
@ Linda...

You might want to read this article. It doesn't seem to agree with your absolute position.

The lead-in reads...

"Absent express language in a short sale agreement releasing the lender's right to a deficiency judgment, the lender has six (6) years to file suit against the homeowner for the difference between the loan balance and the sale price."

The body of the article identifies the specific code which allows lenders to pursue deficiency judgements. In fairness, the article also indicates that less than 10% of lenders actually pursue the judgements.

p.s. Took less than 5 seconds to find by Googling "nevada short sale deficiency judgement".
  • October 19 2010
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Rob, you know nothing and have obviously never completed a short sale today...go back to teaching math. Nevada also has no deficiency judgement.  Banks are doing whatever they can get away with, they do try.
  • October 19 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

"in California there is no deficiency judgment" Ok nitwit, there are quite a few restrictions on that statement: no cash out refi, owner occupied, no fraud in the loan, etc. etc. etc.
  • October 19 2010
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

when cash can not be brought to the table or a promissary note at 0% interest cannot be signed due to hardships...it is up to the mortgage servicer to present the offer to the investor that has to approve the deal and it is then their decision based on their companies guidelines as to what and or how much they can write off as a loss in a short sale or if it is more advantageous for them to foreclose instead.  During the short sale process, the foreclosure process remains in effect until an agreement is reached between the mortgage servicer, their investor, the seller and the buyer.  The reason a short sale addendum must be signed by all parties when the offer is accepted.
  • October 19 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

several large banking institutions/mortgage servicers today are asking short sale sellers to bring cash to the table or sign promissary notes at 0% interest to allow the short sale payoff for less than what they owe. 
  • October 19 2010
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Timely advice AND a dose of Spam.

Good show!

And now class, we're going to learn to read!
  • October 19 2010
  • 2Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

That depends on how your short sale is negotiated.  It's a brainer if you have not refinanced, but if you have it can get sticky.  You need to make sure the person negotiating your short sale has the experience to navigate these waters. 

All the best!

Ryan Smith
[link removed by moderator]
  • October 19 2010
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

In California there is no deficientcy judgement. However you may be asked to sign a promissary note but I find these instances to be few and far between.

On December 20, 2007 the Mortgage Relief Act was passed allowing the people who conduct short sales on their primary residence to avoid being taxed on the debt forgiven. However it must be a mortgage, if it is a HELOC you must provide proof that the funds were used to improve upon the property or you will be 1099'ed for the unsecured funds. This law was slated to run through 2010 but has been extended to 2013 because the mortgage crisis is not going away anytime soon.

You should talk to a Certified Distressed Property Expert (CDPE) who can help you immediately!

I hope this helps.
  • July 30 2009
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Depending on the state you live in there may not be a deficiency judgement.  Expect this to affect your credit rating though.  The exact amount of damage to your credit rating and debt forgiveness depends on your servicer, whom you should already be talking to if you are considering this option.  financing another home after a short sale
  • June 17 2009
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

While there are no federal tax consequences (no capital gains tax as long as it's your primary residence and you meet other qualifications), there may be state taxes due.

Also, depending on your financial situation and whether you own other properties, your lender (the one who is losing money) may come after you for the short sale difference.

Only your lender can tell you for sure.

If you are considering a short sale where the lender will lose money, call them immediately. You will be unable to do a short sale without their participation.
  • June 16 2009
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.