Iive in ca and my house is about 200k underwater. i want to try short selling it if possible but how do i make sure that i get the cancellation of debt AND don’t get taxed in the end? my last option will be foreclosure or bankruptcy but not sure if i would even qualify considering i still have an income. my only hardship is accumulation of debt. my only hope is if i get principal reduction on my mortgage but i heard that this would be very impossible.
In Ca most likely your loan is non-recourse meaning if the lender would foreclose upon the property you will not be liable for the difference, now in regard to short sales some lenders are requiring the home owner to sign a promissory note for the difference in order to approve the short sale even if the loan is non-recourse
how do i make sure the lender doesn’t go after me for the remaining mortg balance if i short sale my house?
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Get it in writing from the bank about cancelling the debt. The other part is for the IRS and you will probably just have to wait and see with that!
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I agree with the above. Get everything in writing before selling. If you don’t have a contract in place and short-sell, you will still owe the remaining $200k.
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In Ca most likely your loan is non-recourse meaning if the lender would foreclose upon the property you will not be liable for the difference, now in regard to short sales some lenders are requiring the home owner to sign a promissory note for the difference in order to approve the short sale even if the loan is non-recourse
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you would talk to your lender and see what they plan to do. 1. primary homes are no longer 1099-c’d. that means that the deficiency would not be treated as income (investment/rental properties are not so protected). 2. california is a "non recourse" state. this means that in the event of a foreclosure, the lender cannot go after you in court for the deficiency and must take the amount left of the mortgage balance after selling the home as a loss. however, they can still have a contingency that you sign a promisory note for the defiency amount in order to make the deal go through. this would supercede the "non recourse" status.
you should talk to a lawyer and your lender before agreeing to anything. if you’re 200k underwater on the loan, you’d be better off with a foreclosure then if you signed a promisory. most importantly get everything in writing before signing a thing. verbal agreements mean zilch in court.
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