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Short Sale on a Rental Property in CA

Posted by Rajesh H on June 7, 2011 at 7:23pm in Short Sale Discussions

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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Replies

  • Chanakya June 27, 2012 at 6:08am

    Hi Rajesh & All,

    Looks like this thread is been inactive for almost a year, which is good thing so I hear how things went since then. I am in the same situation and hoping to get your feedback and see if you could share your experiences with Short Sale (SS) process.

    I live in North CA (SF South Bay) and own a rental property in Contract Costa county. I lived in that house for almost 2 years before I turned it into a rental property. I have been living in a townhouse (SF South Bay) which is my primary residence and is mortgaged with WF.

    The rental property 5/1 ARM loan is with Citi and the loan was reset to 1 year term 2 years back for around ~3.25% APR. So the rent just covers the loan payment but I have been paying insurance, home warranty & property taxes from my pocket for almost ~3+ years (that long the house is on lease). I cannot bleed anymore so I tried to work with Citi to see if I have any option. Citi came back and said I am not eligible for nothing. I tried to increase the rent and that didn't go well and my tenants plan to give me 3-4 month notice.

    So am planning to initiate the short sale process. But I am worried:

    1) How intense the SS process is going to be?

    2) And, if Citi would agree to SS or would they the rent would cover loan so stick with it?

    3) If Citi agrees to SS, how they would handle the debt cancellation?

    4) Would Citi come after me for remaining debt or forgive the balance?

    5) If Citi cancel the debt, what are the implications and how Citi report SS (debt cancellation) to Credit Bureaus?

    6) If Citi is going to give me 1099-C, what are my tax consequences because it is not my principal residency per the law that about to expire this year?

    I am really sorry for a long list of questions. But, I would like to know if anyone happened to be in my situation and how it affected their tax fillings.

    I really appreciate your time and sharing your experiences and knowledge.

    Regards,

    -Vijay

     

  • Stephen Shafer June 15, 2011 at 9:22am
    Feel free to call me at 626 421-2800 I have an attorney I work with but to be honest you probably do not need one. I am closing one next week where the seller makes in excess of 300K and I am closing it with no seller contribution, I am at shaferestate@yahoo.cm

    Stephen Shafer said:

    Rajesh,

    Under the new MARS rules he may not charge you an up front fee. I have closed similiar deals in Northern & Southern California and do NOT charge an up front fee as it  is forbidden by the DRE. Get a 2nd opinion!

    Stephen Shafer

    Rajesh H said:

    I met with local Real Estate attorney today to clarify my questions. Apparantly, he is real estate broker as well specializing in short sale. He charges $2500 for the whole process of short sale. His value proposition for the fee is that he would make sure that the short sale/foreclosure won't affect me a lot, and he would word the contract to seek a sale that is favorable to me.

    Has anyone heard of this type of deals?

  • Tammy Davis June 15, 2011 at 6:15am

    Unfortunately you can't Rajesh....all you can do is check the license status on the DRE website.

    If you want to email me the information....I would be happy to check it out for you. I happen to be working on the MLS as we speak.

  • Rajesh H June 15, 2011 at 6:11am
    Thanks Tammy for the advice. As a end user, can I look at the MLS website in my local area to find out the sales that a broker has done or can this be done only by a person who has permission to do in the MLS?

    Tammy Davis said:

    Hi Rajesh,

    I have heard of this and if he is reputable and has closed short sales...it might be good. But please check him out....you can visit the DRE website and check his license number, google his name...really take the time to investigate. Depending on the area you are in...if you are in my area I can check the MLS to really see how many deals he has successfully listed and closed. Never agree to pay any fee in advance, and if he can handle the short sale...can he handle the sale? Meaning does he belong to the local MLS, does he market the property on the internet...what does he do to sell the property?

    Just be really, really through....I just had some good friends taken advantage of someone claiming to be an attorney and they lost several thousand dollars for a fee paid upfront.

    If I can help...my advice and guidance is always for free ~~

  • Rajesh H June 15, 2011 at 6:04am

    Hi Jeff,

    In my case the deficiency would be about 125 -150K. I am okay to pay upto 5-10K if the need arises to get out of this debt.

     

    Rajesh

    Jeff Payne said:

    Rajesh,

    There is some good advice here, might I suggest checking to see if a member here can help you out? 

    On a side note, how much is the deficiency or short fall on the sale?  I know it goes against the teachings on this site but if you have the means to pay it, why don't you sell it and instead of needing lender approval, come up with the cash to pay the difference?  I guess alot of it depends on the loss. 

  • Stephanie Sabo June 15, 2011 at 5:49am

    Rajesh, please call me to discuss in detail.  I believe an attorney can charge the up-front fee but a broker cannot; have to verify. In either case, you should not pay an upfront fee to ANYBODY. You do not need to pay a short sale fee at all. The real estate commission gets paid out of the sale proceeds (so out of the money the lender nets).  So there is no reason for you to come out of pocket. 

    You can do a short sale in CA on rental property and may be able to get the deficiency forgiven.  It depends on the situation and who the investor is that owns your Promissory Note. I did one last year under the same circumstances - bought in 2005, lived in it for 2-3 years, then rental since. They were forgiven for any deficiency in the short sale documents. So it can be done on a rental depending on your personal circumstances.

    I work on these a lot and have an attorney who assists when necessary. He usually doesn't charge me if it's a quick phone call here or there.  If he needs to be paid for an hour to make some calls, it's certainly a lot better than paying the so-called short sale broker who is actually an attorney (who seems to be taking advantage of consumers)!  Stephanie -Equis Realty - 800.590.1544

  • Jeff Payne June 15, 2011 at 3:47am

    Rajesh,

    There is some good advice here, might I suggest checking to see if a member here can help you out? 

    On a side note, how much is the deficiency or short fall on the sale?  I know it goes against the teachings on this site but if you have the means to pay it, why don't you sell it and instead of needing lender approval, come up with the cash to pay the difference?  I guess alot of it depends on the loss. 

  • Stephen Shafer June 15, 2011 at 3:28am

    Rajesh,

    Under the new MARS rules he may not charge you an up front fee. I have closed similiar deals in Northern & Southern California and do NOT charge an up front fee as it  is forbidden by the DRE. Get a 2nd opinion!

    Stephen Shafer

    Rajesh H said:

    I met with local Real Estate attorney today to clarify my questions. Apparantly, he is real estate broker as well specializing in short sale. He charges $2500 for the whole process of short sale. His value proposition for the fee is that he would make sure that the short sale/foreclosure won't affect me a lot, and he would word the contract to seek a sale that is favorable to me.

    Has anyone heard of this type of deals?

  • Tammy Davis June 14, 2011 at 6:19pm

    Hi Rajesh,

    I have heard of this and if he is reputable and has closed short sales...it might be good. But please check him out....you can visit the DRE website and check his license number, google his name...really take the time to investigate. Depending on the area you are in...if you are in my area I can check the MLS to really see how many deals he has successfully listed and closed. Never agree to pay any fee in advance, and if he can handle the short sale...can he handle the sale? Meaning does he belong to the local MLS, does he market the property on the internet...what does he do to sell the property?

    Just be really, really through....I just had some good friends taken advantage of someone claiming to be an attorney and they lost several thousand dollars for a fee paid upfront.

    If I can help...my advice and guidance is always for free ~~

  • Rajesh H June 14, 2011 at 6:01pm

    I met with local Real Estate attorney today to clarify my questions. Apparantly, he is real estate broker as well specializing in short sale. He charges $2500 for the whole process of short sale. His value proposition for the fee is that he would make sure that the short sale/foreclosure won't affect me a lot, and he would word the contract to seek a sale that is favorable to me.

    Has anyone heard of this type of deals?

This reply was deleted.
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