Monday, October 01, 2007

Foreclosure and Short sale


Written by: Tom Cortesi, First Financial 1-323-791-8145

When you first purchase a home, this loan is generally called a "Non-Recourse Loan." During your home-ownership, if you decide to refinance, then the loan is generally referred to a "Recourse Loan." The explanation is below:
Recourse loan = Non-purchase money, refinanced loan or non-owner occupied property.

Non-Recourse loan = Purchase money owner occupied property

Here is what will happen if you lose your home in a foreclosure:

If you lose your home in Foreclosure with a Non-Recourse loan, the Bank goes after only the property and will not 1099 you or chase you for your other assets.

If you lose your home in Foreclosure with a Recourse loan, the Bank will chase you for your other assets if the loan is shorted and if they don’t they will 1099 you.

Here is what will happen if you sell your home short (short-sale):

If you sell your home as a Short sale and have a Non-Recourse loan, then the Bank agrees to the short sale. They are giving you debt relief and therefore will 1099 you for the shorted amount.

If you sell your home as a Short sale Recourse loan, then the Bank agrees to the short sale they are giving you debt relief and therefore will 1099 you for the shorted amount.

How they affect your credit:

Both a short sale and a foreclosure are reported in the trade line section of the credit report and both affect the score identically.

When a lender looks at your credit for a loan they will treat a foreclosure and a Short sale identically.

Please contact you CPA, tax accountant, attorney, to verify information is correct and up to date.

An Article you should read:
Eliminating "Phantom Tax" On Foreclosures Is Good For Consumers

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