My question involves a foreclosure in the State of: California
I have an rare situation, so please bare with me.
In early 2007, my wife, my brother, and myself bought a condo in California for $345,000. My wife and I own 50% and my brother owns the other 50%.
In the middle of 2008 my brother got married and we all decided it would be best to rent out the condo and go purchase individual homes. I purchased and home with my wife and my brother purchased a home with his wife.
Right now our monthly payment on the condo is approximately $2500 and we rent it out for $1650. The problem is that we had real difficult time renting the property out and we ended up renting to 4 young college students. I am currently in Iraq and my brother told me that the place has been destroyed. My brother estimated the costs to fix the place to exceed $10,000.
Although I never had any intention of letting this condo go, it seems like it might be the best move for me to make. My brother would have a hard time coming up with half the money to fix the condo. It seems like this condo is about to run me dry and I think it might be best to just deal with the loss and let it go back to the bank.
The questions that I am worried about are the following:
1. If the fair market value of the condo is only $200,000 and I owe $345,000 on it, will I have to claim $145,000 in income on my federal taxes if the bank can only sell it for its fair market value? Or what kind of tax consequences will I be looking at?
2. Is there anyway that the lender can come after me for the difference? I don't believe they can in California but I am looking for some expert advise.
I realize that many people might be against this as they feel like I did the "Buy-and-Bail" but I really did have intentions to rent the place out and keep it until I could atleast unload it for what I owe on it.
I would appreciate any expert advice on my situation and thank you in advance.