Real Estate short selling

[farmerdoug]

Okay, that debt fogiveness is good only up to the principal of the house.  If you bought the house for 200,000 and then rolled a boat, car,credit card, home improvement, etc in for 100,000.  So now you owe 300,000 on the house.  Let say the bank will forgive you 100,000 so you are back to a 200,000 loan.  In that case you are liable for the taxes on the 100,000 forgiven.

If you borrowed 300,000 to buy the home and then the bank forgives a 100,000.  You would not be liable for the tax on the 100,000 forgiven.

[logwalker]

If you borrowed 300,000 to buy the home and then the bank forgives a 100,000.  You would not be liable for the tax on the 100,000 forgiven.

Yes, that is all I'm saying. If other things got rolled into the house via a home equity line of credit, then it would be different. But the HELOC would be in second position to the First Mortgage.

scsmith42, you are right that a refinance would net the borrower cash that should be taxable. I was just thinking of a straight mortgage for the initial purchase. It sure gets complicated. Joe

[scsmith42]

scsmith42,  It sure gets complicated. Joe

Amen Brother!

[isawlogs]

Between you and me , it should not be complicated at all .... You borrow it , you paye it back .   :

[stonebroke]

So I was just kinda wrong but not completely?

Stonebroke

[Raider Bill]

In this case She borrowed $137k for the house, down stroked $25k =$162. Took second morgage or equity loan of $20k to fix up plus some more of her $$$ around $10k.   total owed bank around $182.

Poured everything she had into this house then the bottom dropped out of her industry.

[logwalker]

The bank took the risk and got the collateral. It just was worth a lot less. I am really surprised they let the borrower off the hook. Seems like they would try to get the rest out of their hide. Joe

[easymoney]

there is a small bank in my town that has been known for years to make small loans to people that the bigger banks would not touch. like you could go in and borrow a few hundred dollars on your signiture with no collatteral. they finance a lot of used cars and trucks even logging operators. from time to time they auction off thier reposessions. i bought an 02 pontiac grand am at one of thier auctions a couple of weeks ago for $800.00 a good car just needing a good cleaning.  i found the payment book in the glove copartment they had loaned $5,500.00 on this car and he had not made one payment on it. from the way cars were selling i think the bank was loosing big time. i have heard they have a lot of people that are behind with payments. thier repo lot is already filling up again.

[Handy Andy]

  Seems to me that, if someone has a house, refinances it to take out money for cars and vacations, whatever, then decides they can't make the payments and the bank has to take a hit because the house isn't worth what it once was, should have to pay taxes or something for the loss the bank takes. Really should have to pay back the bank's loss at a future date. 

[johncinquo]

SCS has it correct.  The seller receives a 1099 to report at the end of the year, from the bank.  I have bought my 4th short sale property this year.  I have turned 3 into rental properties, and my offices are in the other.  I have also bought 3 other properties from bank liquidations.  Talk about cheap, the banks want these off their books.  How about a house that sold for $124,000 6 years ago, that sold for $34,000 last week.  If I coul get my hands on more cash I would buy these every month. 

The banks want these off their books as quick as possible.  They will take the loss now, and get some money back into their system to work with, rather than sit on an asset for an unknown amount of time, with an unknown pay out, and face further risk. Banks are also not in the property management or rental business, so they are better off not trying to keep the property.