Tax ramifications of deed in lieu of foreclosure

jenkin7 · Posted: Thu Jul 02, 2009 10:06 pm Post subject:

Hi Angel,

Second mortgage holders generally come after you for the deficiency. But you can negotiate with them and they usually accept a short pay off and settle the debt. A lot also depends on the anti deficiency laws of you state, which varies from one situation to another. As far as I know, California does have anti-deficiency laws to protect the borrowers from deficiency judgments. You can contact a local attorney and check if the laws can be applied in your situation to avoid such a judgment.

Guest

I have a home with 2 mortgages and a condo that I own with no mortgage.
I haved a 2nd home, it is rented and was an investment. The value is less than the mortgage by 100,00. Will my condo be in siezed if I do a dil on the 2nd home? I live in Florida.

savior70 · Posted: Thu Jul 30, 2009 5:59 am Post subject:

Hi,

It is unlikely that your condo will be foreclosed if you do a deed in lieu on your second home. The condo has no mortgage on it and you own it outright, and I believe it is not used as collateral for the loan on the second home. In that case, there doesn't seem to be any chance of your condo being seized by the mortgage holder of the second home.

Guest

Angel,
I am just one of those who has been puzzled with the influx of information, so I will tell you what I found out so far.
If the line of credit was acquired when you purchesed your home (assuming it is you primary residence) from what I read all over the place is that it is considered the purchase money loan and there should be no federal tax ramifications for Carlifornia. Refer to the IRS publication 4681. But you might have to pay the California state tax on the forgiven debt, since California was only excluding the cancellation of debt from income during 2007 and 2008. I hope they extend it to 2009, otherwise we are in trouble..

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