Posted on: 18th Aug, 2008 11:30 am
we have a rental property that has been on the market for 3 years with no offers. for the past year, the property is at a negative cash flow as the property taxes have increased over 20%. in april we stopped making mortgage payments as the tenants have not paid in full. in june we had an offer that was less than what was owed on the mortgage. we accepted the offer on the condition that the bank accepted that as a short sale. the bank just recently denied the short sale, stating that the fair market value was higher than the sale price. however the bank failed to do the math and at the price they are insisting it be sold at, no investor will buy the property - it does not make any money. in addition, a similar piece of property is under contract for less than the asking price we received. we have been advised by the bank that we can try for deed in lieu of foreclosure but am not sure what the financial implications would be. so my questions are:
1) what the costs to us?
2) would we still be responsible for the balance of the mortgage? is is over $230k.
3) would we be responsible for the attorney fees?
4) would the irs consider the entire write off as income? all $230k?
5) should we get an attorney? more money out the door (we have to pay the attorney for the non sale as they did quite a bit of work).
thank you very much for your replies.
1) what the costs to us?
2) would we still be responsible for the balance of the mortgage? is is over $230k.
3) would we be responsible for the attorney fees?
4) would the irs consider the entire write off as income? all $230k?
5) should we get an attorney? more money out the door (we have to pay the attorney for the non sale as they did quite a bit of work).
thank you very much for your replies.
Welcome Heliwoman,
Since I am not a certified tax consultant I cannot answer any tax related questions...I suggest contact a tax advisor for that or call the IRS.
Let me attempt to answer your other questions:
1) What the costs to us?
Definitely get a full accounting from the lender as to any costs they expect you to pay. There shouldn't be any for you to pay upfront though.
2) Would we still be responsible for the balance of the mortgage? Is is over $230k.
There should be a clear written agreement between the borrower and the lender regarding this issue of whether the debt is cancelled or whether the borrower still owes the lender any additional sums of money.
Be aware,however, any junior liens are not extinguished (a foreclosure wipes out junior liens)
3) Would we be responsible for the attorney fees?
Again there should be a written agreement with the lender paying their own fees.
4) Would the IRS consider the entire write off as income? All $230k?
Consult a tax advisor to be sure.
5) Should we get an attorney? More money out the door (we have to pay the attorney for the non sale as they did quite a bit of work).
Working with the lender should be satisfy both you & the lender in this situation BUT for your peace of mind consulting an attorney is always a good idea. What's the cost of a consultation in comparison?
Since I am not a certified tax consultant I cannot answer any tax related questions...I suggest contact a tax advisor for that or call the IRS.
Let me attempt to answer your other questions:
1) What the costs to us?
Definitely get a full accounting from the lender as to any costs they expect you to pay. There shouldn't be any for you to pay upfront though.
2) Would we still be responsible for the balance of the mortgage? Is is over $230k.
There should be a clear written agreement between the borrower and the lender regarding this issue of whether the debt is cancelled or whether the borrower still owes the lender any additional sums of money.
Be aware,however, any junior liens are not extinguished (a foreclosure wipes out junior liens)
3) Would we be responsible for the attorney fees?
Again there should be a written agreement with the lender paying their own fees.
4) Would the IRS consider the entire write off as income? All $230k?
Consult a tax advisor to be sure.
5) Should we get an attorney? More money out the door (we have to pay the attorney for the non sale as they did quite a bit of work).
Working with the lender should be satisfy both you & the lender in this situation BUT for your peace of mind consulting an attorney is always a good idea. What's the cost of a consultation in comparison?
Thank you for your information. The bank is Wells Fargo and I'm not having a lot of help from them.
Are you aware of any restrictions when doing a deed in lieu? i.e. will they take rental property? What if there is a 2nd lien on the building? The bank for the 2nd lien is willing to let it go for a price. (there's always a price).
Regards
Are you aware of any restrictions when doing a deed in lieu? i.e. will they take rental property? What if there is a 2nd lien on the building? The bank for the 2nd lien is willing to let it go for a price. (there's always a price).
Regards
Are there tenants in the rental property? If so they will probably end up having to move.
A deed-in-lieu will NOT wipe out any 2nds (junior liens) - sorry.
A deed-in-lieu will NOT wipe out any 2nds (junior liens) - sorry.
Yes there are tenants -3 of the 4 units are rented; 1 was planning on moving out; the other 2 are aware of the situation (not the foreclosure part but the sale part). Rental units in the area are not a problem so they will not have issues. Can deed in lieu be used on rental properties?
I'm not worried about the junior lien. We never received actual cash on it; it's related to another investment property.
Thank you so much for your help by the way. This is the only place that I'm getting answers of any sort for our situation. Keep up the good work.
I'm not worried about the junior lien. We never received actual cash on it; it's related to another investment property.
Thank you so much for your help by the way. This is the only place that I'm getting answers of any sort for our situation. Keep up the good work.
Whether you can solve your foreclosure by offering a deed-in-lieu is up to the lender - I have no knowledge that it isn't a possibility but all foreclosure options ultimately rest with the lender.
And you're quite welcome...anytime we can help we're more than happy to.
And you're quite welcome...anytime we can help we're more than happy to.