BEST ANSWER
The primary issue will be what the note says about being recourse or non recourse. If the note is recourse there will be the ability for the bank to go after a deficiency. If the loans were used to purchase the property by the same bank it likley that the loans will be non recourse. A short sale could address the issues by negotiating with the lender that there will be no defiency. However, typically banks doing this require that you can not have any other assets , the banks could look toward , and could expect you to contribute funds to satisfy the lenders to not pursue a deficency.
Have someone look at your notes to determine the likelyhood of the banks going after a deficiency. The debt forgivness act of 2007 limits the short sale from foregiviness of income on a primary residence but this does not change state rules. So if home is your primary residence there should be no tax laiblity do to a short sale or foreclosure from the first mortgage. But you will need to check what the state policy on debt foregiveness. Prior to 2007 if the loan was 100,000 and sold for 70,000 there would be 30,000 of debt forgiven thus income that would be taxed at the federal level at your tax rate.
Confirm with a tax expert and a proffessional that can look at your mortgage to confirm recourse or non recourse and that should confirm your options.
The other issue with between foreclosure and short sale is credit score, ability to purchase another home in the future within the next 5 years and what happens to you on other purchases with credit.
Hope this helps.
Keith Manson
First Weber Group
Certified Distressed Property Expert
Greenfield, Wisconsin
Sun Apr 26 2009, 10:02
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