can they lien our home if we walk away from underwater investment property? we have a large amount of equity in our principal residence. We do not want to move. A while abck we bought an investment property. It is rented out, but we are underwater. Due to the large amount of equity in our home, a bankruptcy lawyer told us we are not suitabel for BK. If we stop the payments on the investment house, can they come after us with a lien on our own home. The loan is with Green tree ( it was sold to them) & I have been reading horror stories about them.
I'm not an attorney, but I don't see any way for the bank to encumber another piece of property you own with a lien to satisfy a debt you owe them without going through the legal process and obtaining a court order of some sort (similar to a garnishment order). Let's await other opinions.
Our attorney told us they can't touch a principle residence in our state. I would check with one just to be sure. We have a large amount of equity in our house as well.
It depends on your state law. Some states, yes; others, no. As danada said, there first have to be legal proceedings such as a suit, judgment and then the lien, from which enforcement follows. That procedure again depends on state law.
To save time, if you are in FL and if you have homesteaded, then no. Otherwise, see an attorney, it's worth it for such a large risk.
we live in CA. What type of attorney should we engage? /consult? We are also both retired on disability. When we bought th e second house, we were working & doing well, then I had a stroke & DH hurt his back badly.
In CA an original purchase money mortgage on a primary home is non-recourse: I don't know about a second. I gather that the rental does not cover the expense on the investment home? I'd suggest a real estate/foreclosure specialist. It's also possible you would be an excellent candidate for a short-sale because of the documentable hardships - the disabling injuries, etc.
correct. The rental income we net is less than our expenses ( mortgage, tax, insurance, maintenance etc) Thi sis why we wnat to stop our losses, I do not want to take out any more on our HELOC to pay bills for a place that has turned our dream upside down.
I am hesitant about a short sale, as I thought we'd have to pay tax on the cancellation of debt?
Yes, the forgiven amount will be taxable. Since it is not your primary home the "primary home" provision of the Mortgage Debt Forgiveness Relief act won't work. There is another possibility of avoiding tax on a short sale if you are insolvent. Basically, the simple test is to compare the equity in your main home with the debt on the other. Bring other assets in if they are substantial. The proper way is to do the worksheet in publication 4681, downloadable from the irs.gov website.
There is yet another possibility IF your appraised value is reasonably high, above your note or just very close to it. It helps if the county assessed value is up there. (the full assessment, not a capped one). If it forecloses, that is treated as a sale at the note value with the deficiency being the difference between note value and the appraised value (this is for federal tax purposes). This is discussed in pub 4681. A lot depends on that assessment and appraisal. The local court deficiency can be challenged by the appraisals, too. This will work for a narrow segment of defaults. Note also that you will need to have lived in that house for 2 years out of the past 5 as it must be a primary home for this to work well or, suffer a capital loss on it.
Numbers. Assume $200,000. note, $180,000. county assessment at 100% with an appraisal which is close enough to corroborate. Zillow Zestimate, though not widely respected is a national service with a consistent algorithm and if close could be corroborating.
1. Short sale. Sale amount $135,000. (short sales will always be attended by lowballers and if that's the only one, the realtor will push it with the bank) That's a shortfall of $65,000. which cannot be waived because it isn't primary and we'll assume you're not insolvent. If you are insolvent, that can go.
2. Foreclosure. Forecloses at $200,000. note value. The appraisal of $180,000. is subtraacted from the note for a $20,000. deficiency. The local can be dealt with if it's judicial. The bank will try to say it's worth $140,000.- $150,000 or less. If sold at auction they'll use that value. However, you can challenge the value used depending on your state's laws and procedure. But, a federal value is a federal value. The advantage of this is that either the proceeds are offset by the primary home exemption (2 out of 5) of $500,000. or is just a capital loss. So the value itself is n ot taxable.
You might try the 2 out of 5 argument to call it a primary home in the case of a short sale but it's not specifically stated as a parameter under this part of the IRS code, only the real estate capital gains section. Some may argue (myself included) that it represents a policy and precedent within IRS code but you have to be prepared to fight it if they want to get picky. You,ll see what I mean in 4681.
In either case, you still have to be prepared to argue and negotiate with the bank regarding the collection of the deficiency, or waiving it in any agreement (the way to go).
anything is possible if they get a judgment on you. seek a BK attorney, homestead your property and start preparations to short sale that investment property. if your going to file BK then you can surrender that investment property during BK thus releasing your obligation.
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