-
Quick Tour
Connect. Share. Learn.Welcome to ActiveRain, the #1 social community for real estate professionals.- Explore the world's largest storehouse of real estate knowledge
- Access free training on ActiveRain University
- Share the experience of life in the real estate industry
- Grow your business through real estate blogging
- Blogs
-
Resources
Product Reviews Curious as to what others in your profession think about a certain product or tool? AR's community takes the time to leave honest and transparent reviews of their experiences so you can be a bit wiser about your purchase.
- Broken down by categories and subcategories for easy finds
- Get an unfiltered look at what real users are saying
- Leave a review yourself for others to benefit from
- Add new products as you use them and gain points for doing so
|
;)
;)
;)
Find CA real estate agents and San Diego real estate on ActiveRain.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
© 2013 ActiveRain Corp. All Rights Reserved
4 Comments on California's new short sale law - CCP 580e - no deficiency (yes) - 1099 (no)?
Not a chance the IRS is going to agree with that interpretation! It's Cancellation of Debt, no doubt. You will get a 1099.
Plus, looks at the next phrase, "...and to fully DISCHARGE the remaining amount" -- that's COD and you will get a 1099.
Thanks for the comment.
I brought up the argument for discussion. It could be useful for someone with no other tax reduction argument.
In light of the fact the law says full payment, this law seems to parallel what CA courts have said about 580 b loans. The property goes back as full payment.
580b loans are called non recourse loans. But they do not seem to be non recourse before the foreclosure... right?.... the bank still says you owe them money, defaults still harm your personal credit... I thought not non recourse meant not personal?
yet 580b makes loans become non recourse after a foreclosure.
Now 580 e says full payment.
Why does discharge have to mean loan forgiveness?
Discharge could mean that borrowers duty was complete.
This law can be seen as an effort to turn recourse senior loans into non recourse loans after a short sale.
----
As lawyers we make the best arguments for our clients when they need them.
We prepare back up scenarios. That is mine.
This is an interesting topic, however you both miss a couple of key points.
Given that 580e was amended July 15, 2011 with changes to go into immediate effect, there is no case law interpreting the tax consequences and whether the short sale will result in DOI/COD or will serve as the two parties disagreeing on the actual value of the loan and settling on the actual amount owned (for tax purposes) resulting in no DOI/COD. However, even if the deficiency is viewed as COD, it will (80%+ chance) in all likelihood by forgiven/excempted (by the IRS) under the Mortgage Forgivenesss Debt Relief Act, unless it's an investment property.
Nonrecourse does NOT mean "not personal." Nonrecourse means that generally the lender cannot bring suit against you to recover any deficiency. (Defined: a course of action to which a person turns for help or to solve a problem.) You might owe $1M and default on the obligation and they can foreclose on the collateral (let's say they get $500k through foreclosure) but cannot (generally) sue you for the difference of $500k. However, both short sales and foreclosure are going to affect your credit in a negative way. Most lenders won't allow you to short sale unless you're delinquent on your payments (30-days or more will result in negative credit impact) and a foreclosure will drop the bottom out of your FICO score. So while they can always have a negative effect on your credit, in CA, they're generally nonrecourse (residential loans) and you are not liable for any deficiency from short sale, foreclosure or otherwise (unless fraud or some other factor exists).
Your statement....
Given that 580e was amended July 15, 2011 with changes to go into immediate effect, there is no case law interpreting the tax consequences and whether the short sale will result in DOI/COD or will serve as the two parties disagreeing on the actual value of the loan and settling on the actual amount owned (for tax purposes) resulting in no DOI/COD. However, even if the deficiency is viewed as COD, it will (80%+ chance) in all likelihood by forgiven/excempted (by the IRS) under the Mortgage Forgivenesss Debt Relief Act, unless it's an investment property.
Response:
In a short sale one would expect the agreed value would be the sale price of your house, but you are correct when the banks have made short sales particulary difficult I have advised some people to be prepared to make the argument the house was worth much more than the short sale price.
Regarding the 80% comment.
I would say 50% of my clients have cash out refis....
For their sake one would hope your analysis is correct, but give this is the definition given by the IRS with from 982... I am not so sure your analysis is correct.
"Qualified principal residence indebtedness. This
indebtedness is a mortgage you took out to buy, build, or
substantially improve your main home. It also must be secured
by your main home. If the amount of your original mortgage is
more than the cost of your main home plus the cost of any
substantial improvements, only the debt that is not more than
the cost of your main home plus improvements is qualified
principal residence indebtedness. Any debt secured by your
main home that you use to refinance qualified principal
residence indebtedness is treated as qualified principal
residence indebtedness, but only up to the amount of the old
mortgage principal just before the refinancing. Any additional
debt you incurred to substantially improve your main home is
also treated as qualified principal residence indebtedness."
http://www.irs.gov/pub/irs-pdf/f982.pdf
2.
your statement...
Nonrecourse does NOT mean "not personal." Nonrecourse means that generally the lender cannot bring suit against you to recover any deficiency. (Defined: a course of action to which a person turns for help or to solve a problem.) You might owe $1M and default on the obligation and they can foreclose on the collateral (let's say they get $500k through foreclosure) but cannot (generally) sue you for the difference of $500k. However, both short sales and foreclosure are going to affect your credit in a negative way. Most lenders won't allow you to short sale unless you're delinquent on your payments (30-days or more will result in negative credit impact) and a foreclosure will drop the bottom out of your FICO score. So while they can always have a negative effect on your credit, in CA, they're generally nonrecourse (residential loans) and you are not liable for any deficiency from short sale, foreclosure or otherwise (unless fraud or some other factor exists).
response
"non recourse" means "not personally liable". If you read the tax cases... forgiven non recourse loans, compromised correctly, do not result in tax liablity because the debt is not personal debt.
" Non-recourse loans:A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral.That is, the lender cannot pursue you personally in case of default.Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income.However, it may result in other tax consequences, as discussed in Question 3 below."
http://www.irs.gov/newsroom/article/0,,id=174034,00.html