Legal Question in Real Estate Law in California

Shortsale / Foreclosure

Hi. We have a home which carries a $570,000 1st mtge with Wells Fargo. We DO NOT have a 2nd mtge. The home is currently in default. The last monthly payment we made was 10/07 ($4,301). We tried negotiating with the bank to lower the payments/interest due to my husband being out of work and they wouldn't budge. We had a sale date of 5/22 but have an extension because we are trying to sell in a short sale. The bank has accepted an offer of $399,000. There is also a tax lien of $9500 on the property. I have several questions: Can the bank come after us for the residual even if they accept the short sale? Can a 1099 be issued for the residual? Will we have to file bankruptcy? What happens once the house is sold or foreclosed? Will we owe money to the lender and/or to the IRS or State? Any help you can give us is much appreciated. Thanks so much for your time and attention.


Asked on 5/28/08, 5:22 pm

2 Answers from Attorneys
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: Shortsale / Foreclosure

You failed to mention whether the 1st is a purchase-money loan or a refi. Purchase-money firsts for owner-occupied houses are not subject to deficiency judgments under normal circumstances. You might still be hit with a suit for something indirectly connected with your loan, such as fraud or deliberate waste (even not paying the taxes could be charged as waste).

However, on balance I think if this was purchase money you're pretty safe. Further, Congress has softened the 1099 rules, so you're probably not going to get hit there.

Once the house is sold, the new owner will be in charge. Maybe they'll rent to you.

I advise reading EVERYTHING the bank presents to you to see if they are trying to reinstate a right to go after you for the deficiency. Try to get them to agree in writing that they are not entitled to, and will not seek, a deficiency judgment. They probably aren't anyway, but the extra protection would be peace of mind.

Visit the IRS Web site re 1099 relief for foreclosures, etc.

Whether you need to file bankruptcy will probably depend upon factors other than the short sale, such as whether your husband gets back to work soon and what new housing you can find and afford.

Read more
Answered on 5/29/08, 1:14 am
Mitchell Roth MW Roth, Professional Law Corporation

Re: Shortsale / Foreclosure

Not if it was a purchase money loan. You won't have to file bankruptcy. You may have to realize a capital gain due to the debt forgiveness. If the short sale does not go through you have other options short of bankruptcy available.

Read more
Answered on 5/31/08, 10:15 pm


Related Questions & Answers

More Real Estate and Real Property questions and answers in California