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Friday, December 18th - 9:00am-5:30pm ~ Doors Open 8:30
Realty Executives 1903 S. Jones Blvd., #100, LV, NV 89146 (N of Sahara Ave.) MAP
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Here is a preview of one of the many topics covered in this full day certification course. This post compares short sales and foreclosures in the areas of tax consequences, credit impact, and deficiency judgments.
What is a Short Sale?
- A Short Sale is when the
home sold for less than the debt against the property and the lender(s)
agree to accept a discounted payoff. The lender agrees to accept less than what is actually owed on the mortgage.
- A Foreclosure is when the lender seizes the home that the loan is secured by through the foreclosure process, which is notice of acceleration of note, notice of default, notice of sale, and then actual forced sale of the home known as a ‘trustee sale.’
What are the tax consequences?
Sale & Foreclosure….all debt forgiven results in 1099C debt.
Whether it is a primary or rental property makes a difference as to how
much tax you may pay. Simply stated, if you get released from debt the
IRS sees that as income to you, just like you got a pay check. See
this publication from the IRS http://www.irs.gov/pub/irs-
pdf/p4681.pdf on “Canceled Debts Foreclosures Repossessions and Abandonments.”
- You may qualify for an exemption under the Mortgage Forgiveness Debt Relief Act - visit this IRS article for more information: http://www.irs.gov/
What are the Credit Issues?
and Short Sales will appear on your credit history and affect you for
up to 10 years. This may affect a.) employment or b.) security
clearance, etc. Rumor is that a short sale is better than foreclosure
for these items? There is no evidence to back this up. Arguments on
both sides are out there. We do know that there is a specific spot on
the credit reports for foreclosure, whereas short sales are reported
differently. We have also seen examples of the credit score being
impacted based on the total number of missed payments.
What is the liability for the Debt AFTER the foreclosure or short sale?
– The foreclosing lender has the right to sue the home owner after the
foreclosure for the difference between the amount gained at the
‘trustee sale’ discussed above and the balance of debt owed. The
lender has only 180 days (six months) from trustee sale to file, after
that the owner is no longer liable.
- Foreclosure 2nd
Deeds – All deeds that are junior to the foreclosing lender have
different rights than the foreclosing bank. These lenders are called
‘sold off junior lien holders’ and they have six (6) years to recoup
their debt. That means you get foreclosed on November 12, 2009, these
junior lien holders have until November 12, 2015 to sue you.