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Permalink Reply by Smitty on October 17, 2011 at 3:03pm

It's really tough to say whether they will retain their rights to pursue the defiiency until you get the approval letter.  If they do retain their rights, there is no forgiven debt, therefore no 1099.  However if they forgive the remaining balance, they can issue a 1099 which is sent to the IRS and the homeowner.  Now as long as the HELOC was used for improvements to the property and not to pay off bills, buy cars etc., it should fall under the mortgage debt forgiveness act so the homeowner would not be liable for the taxes, so long as the house is sold before the end of 2012.

I've had very good luck asking Chase how much they need to remove any deficiency language.  You should have the negotiator ask in case the approval comes back with them retaining their deficiency rights.

 

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Permalink Reply by Scott Gregory on October 19, 2011 at 11:18am

Bob ... you have to ask Chase about this. A HELOC is going to want more money than a regular second loan. You might have to battle to get them to take $20K on a $360K HELOC at all, much less without a deficiency (especially if it wasn't purchase money and the sellers went out and spent that cash).

When you get a negotiator ask with their intentions are regarding the defieiciency. I don't know how "bad off" your seller is, but your seller MIGHT have to contribute if they are able to get this done. You might want to prepare them for that if you can't get the numbers to work.

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Permalink Reply by Kimberley Kelly on October 20, 2011 at 2:35am

Here in California, Lenders that accept Short Sales on PML's (1st and 2nds) cannot pursue for deficiencies.  Pretty much guarantee they will 1099 the Seller for Income and that is why Seller MUST consult tax professionals BEFORE you do the Short Sale! 

However, a HELOC is a personal lien..very different.  You MUST get it in writing.  I have negotiated many different payment systems on that HELOC.  I find it hard to believe they will accept only $20,000 and not pursue or at least retain the right.  What about a payment program for the Seller for an amount over that $20,000?

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