Question: If the bank sells my house for less than what was owed on it can they come after me for the balance…
Answer: Yes…The bank has 3 options at this point. Either they will do nothing or they will 1099 the homeowner or they will file a deficiency judgment for the amount they lost. In most cases they will 1099 the homeowner and count the loss as income to the homeowner. If you talk to your accountant, sometimes IRS form 982 will counteract the 1099 and you won’t have to pay a huge amount of taxes. They could also file a deficiency judgment against the homeowner and require the debt be paid off. Since most homeowners in this situation can’t pay it off, they file bankruptcy which will get rid of the judgment. There are some things you can do to ensure that a judgment is not filed and that is by doing a short sale. If you have someone who knows what they are doing, they can ask for a satisfaction or to satisfy the loan which means the bank can no longer come after the borrower for the deficient amount. The loan is considered paid in full. Plus with a short sale, the home is sold and foreclosure stays off your credit.
I recently went through a shortsale where the 1st mortgage was taken care of. The 2nd is a HELOC with USAA which accepted 10% cash, but we still owe 94k on the remainder. What is the best way to deal with this> We are 60 days late on payments and they will take action (Charge Off, 1099, collections, etc.) after 180 days. My ex-husband and I are both on the HELOC and are prepared to split everything 50/50. What is the cheapest way to get out of this?
They have not given any firm answers as to what they will do; each case is different. They may not send to collections, they may not move with a judgement, they may not issue a 1099….but they can do all of those things?
They also are willing to accept a Settlement of Cash. Im not sure how much that requires, maybe 30-50%. If they accept that, would they still issue a 1099 for the remainder?
Is a Settlement the best way to go if possible?
We are trying to avoid all the dings to our credit: possible bk, IRS issues, Collections, Charge off, Etc.
Please help.
From what you are telling me, it should be settled already from the short sale. Hopefully whomever did the short sale did it right and asked for a satisfaction on the loan…meaning it was “paid in full” which also means they can’t sue you for the difference. All they can do is 1099 you for the difference, which is ok. Because most homeowners qualify to file form 982 which will eliminate the 1099 altogether. If your lender just “released the lien” then you have to worry about a possible deficiency judgment. Then again, it’s to common for a lender to file a deficiency judgment because that’s even more money they have to shovel out to start the process. Usually they accept their losses and move on.