Hi All,

 I am planning to do a short sale on a rental property in  state of CA. I bought this property in Sept 2005 and lived there for 3 years, then moved out to be closer to work. Since 2009, i have been renting this property at a loss - my rent is 1600, while my mortgage and other dues are 2600.

 

I want to short sale as I don't intend to carry this loss any more. However, I am concerned about the following questions:

1) Will the banks require me to pay the deficiency (of over 125,000) because this is now termed as rental property (as per my recent tax returns)? And will I have to pay tax on the deficiency?

2) Will banks settle for a short sale since my  current income shows that I can afford the payments ?

 

Appreciate inputs.

 

Thanks

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Rajesh. Most of the short sales I do for folks on Florida are similar to your situation. The lender will more than likely do a short sale. However you may have to participate in the loss by making a cash contribution, signing a new promissory note or both. But this contribution will be far less than the $125,000 deficiency. You may have to deal with tax issues as well. You should speak to a CPA and attorney knowledgeable with short sales. I personally did short sales on 2 of my rental properties last year for the same reason.  

 

What you are referring to is called a Strategic Short Sale. I just wrote an article about using this stra...

If you haven't found an agent yet let me know and I'd be happy to connect you with one of our members in your area. You can reach me at [email protected]

 

The lender might allow the short sale.  And might not pursue for the deficiency.  The best thing to do is hook up with a Realtor that is a short sale specialist who can answer questions based on YOUR circumstance.  Sadly since the overall short sale process is not standardized answers are not standardized either. 

 

Certified Distressed Property Experts (CDPE) can help with getting through the process.

 

Pat Chadwell, broker

San Jose, CA

[email protected]

Thanks Bryant for the guidance. 

I read your article on strategic defaults and it was very useful.

 

I am currently trying to work with a short sale specialist in my area. But if I need help, i'll contact you for a different agent.

 

Thanks

Rajesh



Bryant Tutas said:

Rajesh. Most of the short sales I do for folks on Florida are similar to your situation. The lender will more than likely do a short sale. However you may have to participate in the loss by making a cash contribution, signing a new promissory note or both. But this contribution will be far less than the $125,000 deficiency. You may have to deal with tax issues as well. You should speak to a CPA and attorney knowledgeable with short sales. I personally did short sales on 2 of my rental properties last year for the same reason.  

 

What you are referring to is called a Strategic Short Sale. I just wrote an article about using this stra...

If you haven't found an agent yet let me know and I'd be happy to connect you with one of our members in your area. You can reach me at [email protected]

 

Rajesh,

 

I agree with BB and Pat that the lender will most likely allow a shortsale on an investment property. I recently helped one of the owners who had a rental property out in the Riverside area (Southern CA) shortsale the rental property.

 

As long as you can substantiate the hardship then the lender will allow it. Fortunately on this file, I was able to get the deficiency waived for the property owner as well so that was a plus. They were happy about it. As per BB statement regarding tax ramifications, it would be a good idea to speak with the CPA and attorney as well to get the full scope of the situation. If you have any questions, feel free to contact me.

Hello, I'm in a similar situation as Rajesh....brand new to this forum, and is stressed at whether lender (BofA) will allow for short sale of a rental property in moreno valley.  I feel like i have to work extra just to be able to make sure i'm making payments but my rent doesn't cover the mortgage and i have only been paying interest only.  At the same time, I feel like the lender will not approve b/c i have an income.  I'm not even sure who to talk to to get start w/ this whole process  

I am closing a file where the owner has sufficient income to pay the mortgage on an investment property so you might be ok.

If you bought as a primary residence you migh be ok but you should check with an attorney to be sure. I can refer you to my real estate attorney if you would like. Are you behind in your payments yet or do you have a hardship that might force you into being late?

I also have a short sale approval for a similiar situation in California. If you only have a 1st mortgage - and no 2nd, they can not seek a deficiency if the short sale is approved as of Jan 1, 2011. Please see attached : SB931. They wanted my seller to contribute $10,000. I was able to get the contribution down to $250.You really should speak with your CPA or tax person regarding the possibility of the bank issuing a 1099. Most likely they will.
Attachments:

Thanks Stephen for sharing your experience. This definetly helps.

 

I am currently not behind on my payments. At my income level, the bank may deem that I can afford to continue making
payments. Hardship wise, i can say that my family has extended now - Had a baby last february. but no particular hardship to prove.

Can you provide me the contact info for your RE attorney. I am considering talking to one before I proceed with this sale,


Stephen Shafer said:

I am closing a file where the owner has sufficient income to pay the mortgage on an investment property so you might be ok.

If you bought as a primary residence you migh be ok but you should check with an attorney to be sure. I can refer you to my real estate attorney if you would like. Are you behind in your payments yet or do you have a hardship that might force you into being late?



Laura Marshall said:
I also have a short sale approval for a similiar situation in California. If you only have a 1st mortgage - and no 2nd, they can not seek a deficiency if the short sale is approved as of Jan 1, 2011. Please see attached : SB931. They wanted my seller to contribute $10,000. I was able to get the contribution down to $250.You really should speak with your CPA or tax person regarding the possibility of the bank issuing a 1099. Most likely they will.
Thanks Laura! In my case, I have a 1st and a 2nd - but both were originated at the same time as a 80/20 loan.
I spoke to my accountant about the 1099. According to him, i won;t have to pay the taxes based on the below numbers (and considering that the property shows as  rental on my tax returns). Below is what he told me for my situation. I still nbt very convinced though. Do you think this makes sense?

Property chase date : Sept 2005 (bought as Primary Residence)
Purchase Price : 351,000
Improvements : Approx 15,000
Date started using as a Rental : Oct 2008
Proposed Short Sale Price : 200,000
Amount Owed : 325,000
 
"(Purchase Price + Improvements - Deprecation claimed)- Sales Price > (Outstanding Loan balance- Short sale proceeds)

The loss on property is more than that forgiveness of loan: If these numbers stay the same then you will not pay any taxes on the loan forgiveness."
 

 

Thanks David! Appreciate your inputs.



David Dee said:

Rajesh,

 

I agree with BB and Pat that the lender will most likely allow a shortsale on an investment property. I recently helped one of the owners who had a rental property out in the Riverside area (Southern CA) shortsale the rental property.

 

As long as you can substantiate the hardship then the lender will allow it. Fortunately on this file, I was able to get the deficiency waived for the property owner as well so that was a plus. They were happy about it. As per BB statement regarding tax ramifications, it would be a good idea to speak with the CPA and attorney as well to get the full scope of the situation. If you have any questions, feel free to contact me.

Rajesh, Kelly Ryan 626-568-8808 use my name as referral Jim Miller is a toprate CA CPA. I have found B of A i loosening up as per hardship. I now have a contact in theirlegal dept that has helped me close 3 deals..

Stephen

Rajesh H said:

Thanks Stephen for sharing your experience. This definetly helps.

 

I am currently not behind on my payments. At my income level, the bank may deem that I can afford to continue making
payments. Hardship wise, i can say that my family has extended now - Had a baby last february. but no particular hardship to prove.

Can you provide me the contact info for your RE attorney. I am considering talking to one before I proceed with this sale,


Stephen Shafer said:

I am closing a file where the owner has sufficient income to pay the mortgage on an investment property so you might be ok.

If you bought as a primary residence you migh be ok but you should check with an attorney to be sure. I can refer you to my real estate attorney if you would like. Are you behind in your payments yet or do you have a hardship that might force you into being late?

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