Reno Tahoe Odyssey 2015I have written before on how a short sale can be a good route even if in bankruptcy.  The reason being the finality a short sale brings in contrast to potentially of delayed foreclosures.  The delayed foreclosure can slow the time frame within which a consumer is able to borrow again while with the short sale the title is transferred at close of escrow.  It is possible that in bankruptcy the consumer is relieved of owing the debt but the actual foreclosure transferring the title to the lender or a third party purchaser is delayed for quite some time.

There is a new crinkle to bankruptcy and the attraction of a short sale.  The Second Mortgage can no longer be stripped away in a bankruptcy, even when the home is under water. A common strategy in bankruptcy was to allow the consumer/debtor to wipe out junior lien on their home, that second mortgage.  These were often home equity loans or purchase money loans (80/10/10).  The example looks like this: a homeowner holds a home worth $300,000.  A home they paid $500,000 for. Imagine the first deed of trust is $320,000 and the second mortgage note was $150,000.  So there is $470,000 of debt (the first and second mortgage combined) on a home worth $300,000. The home is underwater $170,000. By filing bankruptcy the debtor would show the Court that the second mortgage of $170,000 was worthless due to the fact that the first mortgage note was higher at $320,000 than the value of the home $300,000. The argument continues that the second note of $170,000 is therefore unsecured or is nothing more than credit card debt and the $170,000 is requested to be erased.  This argument no longer works.

Bank of America recently argued and was victorious at the United States Supreme Court cases Bank of America v. Caulkett and Bank of America v. Toledo-Cardona, U.S. Supreme Court, Nos. 13-1421 and 14-163 that the second mortgage should remain secured and must not be treated like credit card debt (unsecured). So the strategy of erasing debt against a home is no longer. The debtor may still file bankruptcy and gain relief from the second mortgage debt, but retaining the home is no longer an option.

This ruling makes short sales during bankruptcy or just on their own even more attractive. A short sale may not be successful, but if not in bankruptcy the homeowner can request waiver of any deficiency from the lender.  The homeowner would still have potential tax liability due to the The Mortgage Forgiveness Debt Relief Act and Debt Cancellation not being extended past 2014.  If the homeowner is in bankruptcy, the short sale, as above described can allow finality and a timely transfer of title out of the homeowner’s name.

OTHER POSTS ON DEBT

Income Taxes & Foreclosure/Short Sales 2014 Update (12.17.2014)

Ten Facts about Mortgage Debt Forgiveness

IRS publication on how 1099 taxes are calculated, exempt, etc.

IRS explanation as to taxes resulting from Foreclosure and Debt Cancellation.

OTHER SHORT SALE POSTS

7 Tips for Short Sale

Addendum to Short Sale Listing 1.26.2010

Advance Fees Continued and the FTC 1.6.2011

Advance Fees – Short Sales – FTC II 5.4.2011

Charging for negotiating short sales/Negotiators 10.1.2010

Deficiency Judgments Nevada 4.27.2007

Foreclosure and the One Action Rule in Nevada 4.10.2007

HAMP the Federal Shortsale Program coming April 2010

Income Taxes & Foreclosures/Shortsales 12.21.2007

IRS PUBLICATIONS shortsales/foreclosures:

Ten Facts about Mortgage Debt Forgiveness

IRS publication on how 1099 taxes are calculated, exempt, etc.

IRS explanation as to taxes resulting from Foreclosure and Debt Cancellation.

Judicial Foreclosures (Short sales are looking more attractive..) 3.23.2012

Lender Short Sale Approval Addendum

Nevada Home Owner’s Bill of Rights (Foreclosure/Short Sale/Judicial Foreclosure)

Nevada Supreme Court Mandatory Mediation Program and How it Affects Shortsale

Nevada Short Sale Documents

Seller Being Released From Liability Language in Shortsale

Seller Liability After Short Sale 4.20.2007

Short Sale Advanced Fees

Short Sale Addendum to Purchase Agreement October 2010

Short Sales and Bankruptcy and Waiting Periods 10.5.2012

Short Sale – “Dual Tracking” and the Homeowner’s Bill of Rights in Nevada May 2013

Short Sale Junior Lien/Senior Liens Rights To Sue & Other Changes

Short Sale Wallet Size Answer Sheet

Questions? email me darren@dwelshlaw.com

Advertisements