Liability After an Investment Property Foreclosure

[Aeagleguy77]

My question involves a foreclosure in the State of: California

Hello,

My wife and I purchased our first property (condo) in Dec of 2006 with an 80/20 first and second mortgage. We have never refinanced...

Since then, we have purchased a nice home (house) in May of 2008 for a great price that we currently reside.

We are interested in walking-away from the condo since we have our first child due in July and dont want to keep dumping money into the condo that is $100k+ under-water.

QUESTIONS:

1.) Can anyone confirm my tax liability?

2.) Insolvency - If I'm confident that I will be "insolvent" when it comes to the 1099-C, is there anything else that I should be concerned about besides my FICO score?

Any and ALL comments will be absolutely appreciated - hopefully someone that has gone through this before.

Thanks all!

[OhMy]

My question involves a foreclosure in the State of: California

Hello,

My wife and I purchased our first property (condo) in Dec of 2006 with an 80/20 first and second mortgage. We have never refinanced...

Since then, we have purchased a nice home (house) in May of 2008 for a great price that we currently reside.

We are interested in walking-away from the condo since we have our first child due in July and dont want to keep dumping money into the condo that is $100k+ under-water.

QUESTIONS:

1.) Can anyone confirm my tax liability?

2.) Insolvency - If I'm confident that I will be "insolvent" when it comes to the 1099-C, is there anything else that I should be concerned about besides my FICO score?

Any and ALL comments will be absolutely appreciated - hopefully someone that has gone through this before.

Thanks all!

If the condo was a primary home and you never refinanced it then the first and second mortgage are not entitled to a deficiency under CA law. However, it will ruin your credit scores.

You will NOT be liable for a cancellation of debt aka 1099-C if the foreclosure is done in 2007, 2008 or 2009. If they issue you one file an IRS 982 and you will not owe the money.

Here is a link;

http://turbotax.intuit.com/tax-tools...ship/5512.html

[Aeagleguy77]

Thanks for the response!

So, yes, it WAS our primary and it is now a rental.

So besides our credit, you do think we'll be okay and not liable correct?

Thanks again for the response. I truly appreciate it.

[OhMy]

Thanks for the response!

So, yes, it WAS our primary and it is now a rental.

So besides our credit, you do think we'll be okay and not liable correct?

Thanks again for the response. I truly appreciate it.

You will NOT be liable under California law for a deficiency. All mortgages are now foreclosed in CA as a NON judicial process. BE SURE TO READ THE VERY LAST LINE ON THE PAGE, as this is what applies to you as per MERS (Mortgate Electronic Registration Systems). Here is a link to the law;

http://stopforeclosure.com/Californi...losure_Law.htm

And here is a link to MERS who owns your mortgage rights (odd but true);

http://www.mersinc.org/

[OhMy]

Since this a current rental you need to be sure to have all your paperwork in order.

Meaning PROOF that you lived in this property for at least 12 months. Paid utility bills, proof from DMV that your drivers license was at that address and everything else that you can come up with like credit card bills with that address on it.

If the lender tries to prove that you never lived there and you can not come up with proof that you did then you will have problems on your hands such as the 1099-C and investor purchase problem with the deficiency.

You can also have problems with your mortgage OWNER (not the servicer) if you can not produce what I outlined above as they can claim mortgage fraud.

[thehuntingdog]

Hi ohmy, you are a great source of information.. what do you know about the tax ramifications on a California foreclosure.non owner occupied, always used as a rental
I own 9 rental properties in calif. all with still ok equity, but refinanced 2 of them in 06 and now am upside down,

our credit is excellent, and will deal with the decrease in scores,
but am more concerned about the tax liability... hopefully none can we still submit a 1099-c for investment property(rentals)
thanks any links for additional information is always welcome

[thehuntingdog]

what do you know about form 982?

[OhMy]

what do you know about form 982?

I know that a 982 can NOT be used for rental property.

I know that you are NOT exempt from a 1099-C unless the property is owner occupied.

If you have good credit, 680 to 800 fico score you can expect a FICO decrease of 80 points for one 30 day late, 120 points for one 60 day late, 200 points for one 90 day late and so on.

It does not take much to ruin a good FICO score.

[thehuntingdog]

so what are we saying here, if i assume my credit will be shot, can they come after my other assets?
what are my tax conquences? we now have excellent credit and i feel we are willint to take the credit hit.. I am more concerned about taxes i willl be responsible for... or any other consequences...

[OhMy]

so what are we saying here, if i assume my credit will be shot, can they come after my other assets?
what are my tax conquences? we now have excellent credit and i feel we are willint to take the credit hit.. I am more concerned about taxes i willl be responsible for... or any other consequences...

1) Yes a foreclosure will destroy ones credit

2) Yes a deficiency judgment can come after your other assets.

3) Full 1099-C cancellation of debt if the property was NOT owner occupied. You will owe the taxes.

4) NEVER take a credit hit under any conditions, you pay what you need to. Rent the home and add the shortage every month. Otherwise you will find yourself in a living hell.

5) Read my other postings about UNIVERSAL DEFAULT on here. You have no idea what you are setting yourself up for. I just posted today about UNIVERSAL DEFAULT. You will lose all of your credit cards an have to pay between 32.99% and 46% on your current outstanding balances.