Short Sale?! HELPPPPP!?
Okay well, my aunt is now upside down in payments for her house. She owes a lot more money than her house is worth. She talked to a realator and who suggested she do a short sale. It seemed like a good idea and the bank approved. I was wondering though, after she sells her house, will she have to pay the difference back to the bank, like a loan, or will they take the loss and she wont have to pay? Also, would a condo be a good choice for her new home, after the short sale closes? She has been looking at a few different places, but she would really like a condo if possible. Will this be a hard place to get because of her bad credit due to the short sale? Any other help would be great!
Thanks,
<33 Mailee
After a short sale, she won’t be able to buy anything right away. This is a derogatory mark on ones credit. She may even have a hard time renting a place for that matter. A short sale is not a "get out from under this house and go buy another" deal.
Yes, she will owe the bank the difference unless the bank agrees to walk away from the difference.This is a question you should ask the bank.
Also, how is she going to afford a down payment on a condo if she is taking this loss on the house? Maybe she should rent for a while until she gets some savings together, etc.
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She will have to talk to her Attorney or Tax adviser in regards to the loss difference. Yes, it might be a bit difficult to qualify for a new loan because a short sale will still affect her credit.
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Realtor, Prudential California Realty
In all likelihood, your aunt will be renting for a while.
As for the loss, this depends on the wording of her loan. If it was non-recourse, the bank will absorb the loss and she simply reports the sale on her tax return as the amount of the loan balance. She cannot deduct a loss.
If the loan is recourse (say from being a refi), then she would owe the difference–and the bank make sue for the money or give her a 1099-C.
See irs put 4681 if she gets a 1099-C.
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Whether or not your aunt will have to pay back the money depends on a couple of things. When you ask a bank if you can short sell your house, they have you fill out an application. On this application, they ask you whether or not you will pay back the difference. If you put yes, they will surely ask you to pay it back.
If you put no, then it depends on what state you live in and possibly how the contract was worded. If your state is a "no recourse" state or if there is a "no recourse" clause in your loan documentation, then you may not have to pay it back. If you live in a recourse state, then it depends completely on the contract.
It may be hard to get credit after the house is sold. The important thing would be to make sure your aunt keeps the rest of her credit good, so that it makes up for this one problem.
Good Luck Mailee
References :
http://www.intelligentbuyer.com/
She would have to pay the difference between what is owed and what it sells for. However once the house closes, she can file a ch 7 bankruptcy and wipe off the debt. But remember, make sure there isn’t a fine line that says your debt won’t dissolve with a bankruptcy. Once the house sells, then the money owed will be considered a regular loan and no longer tied to her house "collateral".
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done it
After a short sale, she won’t be able to buy anything right away. This is a derogatory mark on ones credit. She may even have a hard time renting a place for that matter. A short sale is not a "get out from under this house and go buy another" deal.
References :