Homestead exemption: Protection?

[theylive]

I am in the process of a short sale contract on my primary residence. The cash offer is for $40k and I owe $108k on the condo. I am on my second lawyer and he is acting like this whole thing is no big deal (to me it's huge!) He is saying that BofA will write off the deficiency as a gift or gift tax?, and issue me a 1099. I then will be protected under my homestead exemption and not have to pay a dime. Has anyone else heard of this?

[Enough Already]

Your attorney doesn't seem to be making sense. The bank MAY write off the deficiency, and 1099 you, and you would be exempt from paying taxes per the Mortgage Debt Forgiveness act of 2007. We spoke to our CPA and confirmed that much.

The big question is will the bank let you off the hook for the deficiency? We are in FL and trying for a short sale as well. Be sure it's in the contract they are letting off the hook. Don't sign if they try to hold you to a "soft note". Your attorney should be looking out for that. In FL the whole point of a short sale would be to get the bank to forgive the debt. If they won't do that I wouldn't go through with the sale.

By finding the bank a buyer you save them $40K - $50k in foreclosure costs. You're doing them a favor. Be sure they do one for you too!

That's just my $.02.

[Marshall Rosenbach Esq.]

theylive - Enough Already is right....make sure in the short sale negotiation that the bank agrees the short sale proceeds satisfies the mortgage AND NOTE! IT should say this or state that the proceeds satisfy the entire debt. Generally they will only state the short sale satisfies the mortgage, which still leaves you on the hook for any deficiency judgment the bank gets! My experience is the banks are oftentimes amenable to this, not all, but many.

[Enough Already]

Marshall,

Thanks for the clarification there! I did not realize there was a difference between the mortgage and the note. I will be sure to look for that in our paperwork.

Thanks again!