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Guest

Hi all,
I live (rent) and have a rental property in California. I have a 1st and 2nd with different lenders. This is all purchase money. I owe a total of $360K and the house is now worth $160K. I have a tenant that I am in the process of evicting. I will also be out of work at the end Feb. I've been looking for a job in California for the last 6 months with no leads.

When my tenant was paying the rent I was still $1000 in the red on the property. Lately I've been $2500 in the red plus attorney fees. I've been paying the mortgage out of moral obligation.

Here is what I kind of know:
I am current on the mortgage with no lates.

Based on the market if I short sale it will not be enough to cover the 1st so the 2nd Mtg will get nothing.

Based on the current job market when I find another job my pay will be half of what I make now and will more than likely be in another state.

Since I will be unemployed a loan mod will not work. I am a 1099'd contractor and will not be able to collect unemployment.

I feel like I am flushing money down the toilet. I don't want to deplete my savings and end of with nothing. I've come to terms with the fact that no matter what my credit will be tanked for the next 5 years or so.

My questions are:
Do both mortgages agree to DIL?
Will the 2nd even agree to a short sale?
Is there a difference in taxes between a DIL and Foreclosure?

jameshogg · Posted: Fri Jan 08, 2010 11:12 pm Post subject:

Hi cmin,

It will depend upon both the lenders whether or not they would agree to a deed in lieu of foreclosure request. You'll have to write a hardship letter to the lender so that he comes to know about your financial situation. You should also note that though you go for a short sale or a deed in lieu, the second mortgage lender may charge his dues from you. However, as it's a purchase money mortgage, you can negotiate with your second lender and check out if he can forgive the debt. In case of deed in lieu, the balance debt is forgiven. This can be considered as an income and taxes can be charged. But depending upon the Mortgage Debt Relief Act, you won't have to pay taxes. It is same with foreclosure as well.

Thanks

marklavender1 · Joined: 13 Sep 2009 Posts: 120 -0.14 Dollars($)

a lot depends upon your mortgage lender. you need to prepare a good hard ship letter & keep necessary supporting documents ready.

Guest

Thanks for the responses.
I'm pretty sure I will be 1099'd by both banks especially if it is a foreclosure. Since it was purchase money I believe that I will not have to pay taxes. I was hoping someone would know for sure.

smithsussane · Posted: Mon Jan 11, 2010 10:04 pm Post subject:

Hi cmin!

Welcome back to forums!

In California, the lenders will not be able to come after you for the deficient amount resulting from the sale of the property. As far as I know, due to the Mortgage Debt Relief Act, you will not have to pay any taxes for the forgiven debt amount.

Sussane

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