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kindandgentlejd
Dyn-o-mite!


Joined: 01 Jul 2008
Posts: 206
Location: Sacramento

Great articles on Strategic Defaults and Taxes on Short Sale
PostPosted: Sun Apr 04, 2010 1:22 am Reply with quoteBack to top

Fred Crane is an attorney who won the 1970’s case of Wellencamp v. Bank of America which invalidated due on sale clauses which led to Congress enacted the Garn-St. Germain Act. Fred Crain has for years owned a real estate legal publication called First Tuesday. The following represent 3 of the best articles they have recently published on Strategic Defaults and Taxation of short sales and foreclosures. These are must reads for the everyday practitioner:

Article on strategic defaults. Very well done and references the moral aspect promoted by lending industry.

http://blog.firsttuesdayjourna.....home-loan/

Excellent article on California tax on short sales, aka the “fools tax”. It points out that foreclosure may be way better choice for the homeowner to avoid being taxed on a short sale.

http://blog.firsttuesdayjourna.....eclosures/

Great article on the general taxation on short sales and foreclosures

http://blog.firsttuesdayjourna.....e-of-debt/
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Do_the_math
The WhistleBlower


Joined: 14 Mar 2007
Posts: 2564
Location: Groovy Town

Re: Great articles on Strategic Defaults and Taxes on Short Sale
PostPosted: Mon Apr 26, 2010 3:48 pm Reply with quoteBack to top

I wholeheartedly agree with the articles. But I have to say that SB 401 eliminated CA tax on debt forgiveness. The CA code is not in line with the Federal Tax Code. I was surprised to find agents in my community that were unaware of the tax or the Bill.

This does put short sales back on the table. Consider also that if the borrower does not default prior to short sale, the borrower will not have the 3 year wait period to qualify for a FHA loan.

Even if a borrower has to file a Chapter 13 to avoid residual liability and motivate the lien holders in cooperating with a short sale, the borrowers would qualify for a home after 12 months of successful payments to the bankruptcy trustee providing they continued to make payments prior to the short sale. Borrowers that don't default on their debt prior to bankruptcy don't generally do as much damage to their credit scores which is important post BK. However, to prevent the most damage to the credit score, an amicable short sale without defaulting on the loan is best to ensure future loan qualification.

Too many people put to much emphasis and value on ownership. It does not do anyone any good to over dramatize the situation and create anger against the servicer and lenders. Many borrowers that are facing the loss of their home go through the stages of grief. If it really is in the best interest of the borrower to strategically default or complete a short sale, it is important for professionals to help borrowers move beyond anger and denial to acceptance.

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