How is the deficiency determined?

[Under_H20]

Is the deficiency determined by what you owe on loan minus the amount the home is auctioned for at the court steps? Do they use fair market value minus the amount owed on loan? How is the deficiency determined?

[cdmosaic]

Deficiency is the difference between your loan amount, fees, etc and the amount the bank realizes after the sale of the property. Hope that helps.

[Under_H20]

Originally Posted by cdmosaic

Deficiency is the difference between your loan amount, fees, etc and the amount the bank realizes after the sale of the property. Hope that helps.

So deficiency is only determined when/if the bank sells the home after it has been foreclosed? If that's the case, there must be a statue of limitations on when they can determine deficiency for tax purposes. What if the home doesn't sell for years? How can they determine the debt forgiven if it doesn't sell?

[dogatemy]

I have a similar question. Arizona law says they have to file a deficiency suit within 90 days. Is it 90 days from the date of the Trustee Sale? If so then how is the value determined if the bank is the one who took ownership of the house? If it is 90 days from the date when the lender sells the house then what if they hold onto the house for years?

I would really appreciate someone shedding some light on the topic. It is not very clear to me. My trustee sale is 11/6/2010 and I want to know when I should expect this mess to be over with..

Thanks!

[cdmosaic]

My understanding is that deficiency occurs in a short sale situation. The bank agrees to an amount less than the loan amount and then you are responsible for the balance unless you can get the bank to accept the short sale proceeds as full satisfaction of your loan and you need to get that in writing.

If the house is sold at the trustee sale, that is a foreclosure and I don’t think deficiency has the same meaning anymore. You are now bound by the laws in your state regarding foreclosures and recourse vs non-recourse loans. There is no deficiency for a non-recourse loan, but there can be forgiven debt and tax implications.

Someone correct me if I have this wrong.

[we're_still_reviewing]

Originally Posted by cdmosaic

My understanding is that deficiency occurs in a short sale situation. The bank agrees to an amount less than the loan amount and then you are responsible for the balance unless you can get the bank to accept the short sale proceeds as full satisfaction of your loan and you need to get that in writing.

If the house is sold at the trustee sale, that is a foreclosure and I don’t think deficiency has the same meaning anymore. You are now bound by the laws in your state regarding foreclosures and recourse vs non-recourse loans. There is no deficiency for a non-recourse loan, but there can be forgiven debt and tax implications.

Someone correct me if I have this wrong.

I was told by our lawyer that a 1099 is not issued when you foreclose. Can someone confirm that ? I'd really like to know.

TIA