For the past several years, we have been helping out people that are underwater in their homes, can't afford the payments and at risk of foreclosure. This whole foreclosure monster was virtually non-existent a few years ago and now most home owners to need to have some basic knowledge about it. We do hear similar questions when owners are facing foreclosure or considering a short sale. "Can the bank come after me for the deficiency? Can they go after other assets? Will there be tax consequences?" In almost all cases, the answer is "maybe." However, there are some simple answers to each of those questions.
"Can the bank come after me for the deficiency?" In California, on the first loan, whether short sale, foreclosure, primary residence or investment, purchase money or refi, the answer is "NO." The law was clarified effect January 1, 2011. If you have a second loan, the answer is maybe. If purchase money, no. If a refi...well...Alex Munn of BPE Law Group will give you the straight answer. And he will be at a FREE workshop on June 30. Click here for more info.
"Can they go after other assets?" California is a single recourse state, meaning they can go after you or the property. 99.9% of banks use a non-judicial foreclosure because it is easier and less costly. In that process, they take the house...and that's it. The deed of trust that you signed to get the loan and the house basically say "as long as you make the payments, you keep the house. If you stop making payments, the bank gets the house." Find out more at our seminar.
"Will there be tax consequences?" Thanks for the debt forgiveness act of 2007 good through the end of 2012, the IRS will not tax you for the forgiven debt on your primary residence in a short sale or foreclosure. Same is true of California. On income property, it gets tricky. There will be a forgiven debt that could be taxable, but you also probably experienced a loss on the property. The two could like offset or even result in a loss for tax purposes. We will have a tax expert, Dona Riolo at our seminar as well, to address the most common tax questions related to short sales and foreclosures. Click here and sign up.
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