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Nevada Property: foreclosure vs. short-sale; deficiency
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Hello Sofya -
1) In my humble opinion, a short sale helps two parties: the lender, who
realizes more money than at foreclosure, and the real estate agent, who gets
a commission. No money goes to the borrower/potential client, and he might
get stuck with a 1099 for cancellation of debt income. I cant argue with
someone who claims that theres a benefit to the borrowers credit rating if
they go the short sale route, but thats only because I dont know enough to
argue that point; however, its clear to me that an eventual bankruptcy will
wipe out any minor credit benefit from the short sale.
Will the list allow me to claim Fauchers Law? A short sale never helps a
client about to go into bankruptcy anyway. Maybe someone else already has
dibs on this law.
2) Is the client going into bankruptcy anyway? If so, see answer to #1. If
not, I have no clue about the relative impacts on credit.
3) Yes.
4) So long as the foreclosure takes place after the bankruptcy, 26 usc 108
applies to wipe out the tax liability from the discharge of indebtedness.
Bankruptcy discharges the individuals liability for the mortgage; the bank
may only go after the property once the petition is filed. No deficiency
action.
Should the foreclosure take place before the bankruptcy petition is filed,
then . . . the lender may issue its 1099 for COD income right away, and the
client is tagged with phantom income, the tax on which is not dischargeable
in bankruptcy (have them the client see a CPA to determine if he qualifies
for insolvency).
- John D. Faucher
On 5/16/10 5:21 PM, "sofiya" wrote:
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> Question: PC owns a house in Nevada which was purchased in 2005 (80/20 loan).
> The property was refinanced in 2007 and the PC now has only one mortgage
> obligation to B of A. PC is unable to make the payments and wants to surrender
> the property.
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> (1) is it better for PC to do a short-sale or let the house go into
> foreclosure?
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> (2) should the PC contact the lender and find out if the lender offers Deed in
> Lieu of Foreclosure since I've heard it has a lesser impact on the homeowner's
> credit?
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> (3) based on my research, I found out that NV is not an anti-deficiency state
> and the foreclosing lender has 3 months from the date of sale to obtain a
> deficiency judgment. Will this judgment be dischargeable in PC's ch 7 BK?
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> (4) will there be any tax obligation associated with this or will filing of
> the bk also discharge this obligation?
>
> Thank you
> Sofya Davtyan, Esq.
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>>> - John D. Faucher
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Re: [cdcbaa] Nevada Property: foreclosure vs. short-sale; deficiency judgment and tax obligat
Hello Sofya -
1) In my humble opinion, a short sale helps two parties: the lender, who realizes more money than at foreclosure, and the real estate agent, who gets a commission. No money goes to the borrower/potential client, and he might get stuck with a 1099 for cancellation of debt income. I can’t argue with someone who claims that there’s a benefit to the bor
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