| Understanding the California shortsale tax is necessary | | | | home and the owner doesn't take a fatal blow to his |
| when contemplating selling a home for less than what | | | | or her credit history. |
| is owed on it (selling a home "short, " in other words), | | | | All is not completely rosy in the transaction, though, as |
| which is a situation many homeowners in the Golden | | | | the California shortsale tax may have to be |
| State are being forced to confront in our challenging | | | | addressed. Let's say that a home that is saddled with |
| economic environment. Not only has the bottom fallen | | | | a 500, 000 dollar mortgage undergoes shortsale and |
| out in the housing market in many areas, but tax laws | | | | goes for 300, 000 dollars when a ready, willing and |
| are generally not too forgiving, sad to say. | | | | able buyer steps forward to make an offer and |
| During the go-go real estate years in California, housing | | | | purchase the property. |
| prices were increasing by leaps and bounds every | | | | Federal taxes on the difference between what is |
| year. Many folks bought when the market was good, | | | | owed and what the property sold for can generally be |
| paying prices for much more home than they'd | | | | waived under the Debt Relief Act of 2007 (it's in |
| normally be willing to chance on the assumption that | | | | effect for 2009). However, California will tax the |
| prices would keep increasing and the ARM | | | | forgiven debt (200, 000 dollars) at up to a 9. 3 percent |
| (adjustable-rate mortgage) they'd taken out wouldn't | | | | rate, meaning a nearly 19, 000 dollar tax bill could result. |
| adjust before they could sell for a profit. | | | | Normally, this tax liability will go into effect as soon as |
| Unfortunately, many folks are now sitting on homes | | | | the old homeowner receives the Form 1099 from the |
| that are worth far less than what is owed, with an | | | | bank that is forgiving the debt difference (that 200 |
| ARM that has now adjusted upwards (meaning a new | | | | grand). Of course, not many folks engaging in a short |
| monthly payments of hundreds more) or are stuck | | | | sale will have that kind of money lying around to settle |
| with a home, and out of a job in this recession, that | | | | a state tax debt resulting from a short sale, so |
| can't be sold and a mortgage that can't be paid no | | | | arrangements will have to be made to pay down the |
| matter how hard they try. Additionally, they can't get | | | | amount or settle with the state for a reduced |
| the home refinanced. | | | | payment. |
| Given all the above, it's understandable that a | | | | At any rate, conducting a shortsale - which might only |
| homeowner may try to get permission from the | | | | reduce a person's overall FICO credit score by around |
| mortgage holder to attempt to a shortsale in order to | | | | 200 or points - will always be better than letting a |
| avoid letting the home be foreclosed upon by the lien | | | | home go into foreclosure. The fatal effects of that |
| holder (usually a bank or other financial institution). It can | | | | action (foreclosure) can follow a person around for |
| be a sort of "win-win" for both the owner and the | | | | many, many years and may even prevent him or her |
| bank, in that the bank will at least get something for the | | | | from ever getting another mortgage. |