Real Estate short sale
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Real Estate short sale
Hi My question is regarding real estate property. In 2006 my husband and I purchased a property in California as primary residence. We have a first loan for 340K and 2nd for 90K as a HELOC with the same lender. The loans were puchase money loans. After living in the house about 1 year we bough other property in California and we rented out the first one. After a few months that we had a tenant we cant fint a tenant for the property . The area is hard hit by the falling home prices ad it is very hard to rent it out.We contacted the lender- Country Wide and there advise was to do a short sale. The current market value is about 150K.My question is: Is the lender going to come after us for the difference? Are we going to have a 1099 send to IRS? Are these loans considered non-recourse loans?Thank you very much,Aria and Daniel
Asked on May 28, 2009 under Real Estate Law, California
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 11 years ago | Contributor
A short sale is a sale for less than the remaining balance (principal plus accrued and unpaid interest) on a mortgage. If you sell for less than the remaining mortgage you *may* be liable to your lender for the balance. However, if your lender agrees, they can take the proceeds of the short sale as payment in full and let you off the hook. They'll typically do this as a way to encourage you to make the short sale and get the lender (hopefully) most of what they're owed without the hassle and costs of a foreclosure. (After all, if you still owed money after the short sale, you'd have no incentive to do it, and might choose to simply walk away from a property whose value is "underwater.") If CountryWide is advising you to do a short sale, it sounds like they will agree to accept the proceeds of the short sale as payment in full--but make sure you get that in writing before you close the sale. That in turn means you'll have to get the lender to approve or sign off on the proposed sale price--if it's too low, they may ask you to hold out for more before they'll accept the sale proceeds as payment.
If you don't make any profit on the sale, there's no need to send a form 1099--the 1099 is only for non-wage income. No profit means no income.
As for whether the loans are non-recourse--if they're truly mortgages or home equity loans, then the lender has a recourse--foreclosure. However, they would like to avoid that, so you do have a good chance of being able to get them accept a short sale in full satisfaction.