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Absent specific contractual agreements some California Homeowers are better off taking a foreclosure than agreeing to do a short sale. Other California Homeowers may be better off setting up a short sale rather than taking a foreclosure.
For most upsidedown California homeowners there are three major goals to consider:
1. Elimination or Mimimization of a deficiency and therefore protection
of remaining assets including salary or other income streams;
2. Elimination for Minimization of COD or forgiveness of debt income form the IRS;
(If you are $100,000 short, you may be obligated to report the
forgiveness of debt to the IRS, even if your lender does not send you a
1099.
A large COD could bump your tax bracket and result in a large tax bill.
Also, please do not forget there will be other tax considerations if you took cash out.
3. Protection of Credit - if possible.
To do a short sale properly you need a Realtor to help you price,
list market and sell your property. But, you also need a lawyer to
protect your interests. Many times the banks will not agree to release
you from your obligations under the note. The lender may never mention
this condition until you show up at the closing table. Or, perhaps you
will not know until you get a collection letter in the mail.
Do you have a recourse or non recourse loan. Do you have to fear a
sold out junior. Is your Heloc or second loan entitled to purchase
money protection. Will there be a merger of your two loans if the
lender forecloses. Will you be protected from sold out junior liens?
What effect will the bill in Congress have on your residence of
1-4 units. What if you are upside down on your second home?
Our solutions -
We are Realtors and Lawyers. Our lawyers are located in San Diego, but
we are currently working with Realtors all over California. Of course
we would like to effectuate a a short sale and recieve a referral from
the Realtor, but, we will not advise you to do a short sale unless the
bank agress in writing to maintain your status quo or improve your
situation (vis a vis a foreclosure.)
Since we have
lawyers on the team we have other negotiating levers. If you
desire, we will request documents from the lender relating to
predatory lending claims, or RESPA violations, or Truth in Lending
violations. (If you have an option arm this is especially important.)
Conclusion
As stated earlier, sometimes it is
better for a California homeowner to take a foreclosure and sometimes
it is better to do a short sale. However, when you have an attorney on
you team, you can stack the odds in your favor.
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Last Updated ( Tuesday, 28 October 2008 )
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