Legal Question in Real Estate Law in Arizona
I own a 2 bedroom home that is was to small for my new family of 5 (FIVE). My lenders will not work with me to get out from under this home so I feel that I am left with no other option but to WALK AWAY from it. I live in Arizona. When I purchased this home I did an 80/20. The line of credit was only used for the purchase of the home. I want to know what my best option is: 1. a short sale
OR 2. just letting it go into foreclosure. I have never been late on any payments. I am aware of the hits that my credit will be taking and I am ok with that.
1. What I want to know is if I do a short sale- can the lender come back on me at any time for the remaining balance?? And will there be any TAX LIABILITIES??
2. If I do a foreclosure can the lender come back on me for the remaining balance at any time?? And, will there be any TAX LIABILITIES??
Thank you so very much for considering my questions, I really appreciate any help you can give me as I struggle with these questions.
1 Answer from Attorneys
With the short sale, where the lender agrees to take less than the balance owed, the lender on the second usually gets nothing and would try to get you to agree to pay some or all to them. They would likely send you a 1099 claiming that their loss is income to you. The IRS is not treating this as income to you, so long as it is your personal residence, the income is exempt.
With a foreclosure, upon sale all of the liens are wiped out, and the lenders cannot come after you for any deficiency. Similarly, the balance that you did not pay is technically income to you, but the IRS is exempting that income right now. NOTE! you have to meet the IRS criteria for the exemption of the income, and similarly, to avoid any claim against you for the deficiency, under either case.
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