I have two short sale listings that are second homes originally purchased in the $400k range. Both have lost 50% of their value since being purchased new two years ago (one is an oceanfront condo and another is IC waterway condo). Both owners have asked me, due to concerns of tax implications or deficits not being waived, if they would be better of with a deed in lieu of transaction in lieu of a short sale. Both have said they do not want to close if they are going to owe thousands later. Of course I've told them they need to consult their attorney or tax advisor, but is there anything a second home owner can do to definately not have to pay thousands due to the deficit?

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In as few words as possible, NOPE! Unless it is a primary home, the tax relief bill won't apply.
That's what I thought! I guess this concern for owners is a great time to quote Mike and mention to them that a short sale is for people that Have to sell, not Want to sell! The financial consequences are unfortunately something that will have to be dealt with the best way possible after they are no longer also responsible for the mortgage! If anyone has something they say in this case to owners that has helped them, please share!

Brenda Rogers said:
In as few words as possible, NOPE! Unless it is a primary home, the tax relief bill won't apply.
Very Good advice, Thanks!

Gunner Davis said:
I would tell them that deed in lieu will still result in them having a lein placed on them for the difference that the property sells for and will still show as a foreclosure on their credit as far as the rating is concerned. A short sale is their best chance to not have that happen and avoid the dreaded word "foreclosure' on their credit. I just had a client that we sold 3 waterfront investment properties with, forgiving over 750K, all with bank of america I must add, (he he, tooting horn here). Even if the bank comes back and says no we wont forgive the debt...they sellers still should take it, work out .25 on the dollar down the road if possible or place the debt in bankruptcy...which is still better than having that "foreclosure" marked on their credit!
Gunner, you are right. A deed in lieu can still result in a deficiency judgement in many states. It also shows on the credit much differently. As far as tax consequences go, I have been told my multiple CPA's that there is a way to write it off, and have clients who claim they have with INVESTMENT properties (of course its OK with primairies!)

And most of the time, in the event of the lender approving the deal and asking the deficiency be repaid, most will settle for a lump some of ten cents on the dollar, or twenty cents on the dollar paid over a few months. Avoid foreclosure, pick up the pieces later...
With all due respect, I would like to take this moment to remind everyone that we, as Realtors, cannot give legal or tax advice without crossing a line. First and foremost, the best advice you can give your client on these issues is to consult an attorney and/or a tax professional with these questions. Since we are exposed to this information on a regular basis, it is difficult not to give this advice but the liability you will incur if you do so is not worth it.
You are so correct! I wanted the information for myself. As my CPA told me, If I gace any opinion, I better have VERY good liability insurance!

I really just wanted to know what others had experienced!

Brenda Rogers said:
With all due respect, I would like to take this moment to remind everyone that we, as Realtors, cannot give legal or tax advice without crossing a line. First and foremost, the best advice you can give your client on these issues is to consult an attorney and/or a tax professional with these questions. Since we are exposed to this information on a regular basis, it is difficult not to give this advice but the liability you will incur if you do so is not worth it.
Generally, tax advise may also clarify that the homeowner, even though an investor/second home may be insolvant and may not have any tax ramifications ...so they can still get out of oweing. Obviously, best to consult legal/tax counsel, but i would attempt to pursue the short sale and not ask for a 1099-C, but a settlement (from short lender) and possibly have the owner bring funds to settle the deficiency or have the buyer contribute on the sellers behalf assuming the first lien holder is okay if junior lien holders are receiving more funds....otherwise loan fraud. Tread lightly. Hope that helps. For example...short approves at 300 with 10K going to second, leaving second mort 80,000. 80,000 minus the 10,000 from the first = 70,000. Most lenders will settle for 20% so 14,000 in addition to the 10K from the first. I have done this numerous times with chase and WF. Then the home owner generally is not responsible for the defiency because the short lender is not writing off the loss as phantom debt.

Jason- 303.931.2766 colorado
I have heard people telling homeowners to "bankrupt" the deficiency. That is a very fine line that should really be spoken by a bankruptcy attorney. If they sign a promissory note and then go to bankrupt it, they can get into a messy ordeal. I would always say, "A short sale is usually better than a deed-in-lieu, but you need to speak with a qualified attorney (real estate) and CPA for what is best for your situation."
Hi all,
our CPA also has a way do deal with this.
She did these for some of our clients.

Of the few dozen we have closed, all of last years have addressed this issue.
Most have been able to also get out of deficiency.

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