Foreclosure question
Say you have a home worth $200k and owe $100k. Due to financial hardship, you don't pay the mortgage and the bank forecloses. The home goes to a foreclosure sale and sells for $190k.
What happens to the $80k? Does the bank have to give it to the former owner?
What happens to the $80k? Does the bank have to give it to the former owner?
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You get any money over the lender's payoff plus expenses for filing and disposing of the property. 0 -
If I have a home worth $200,000 and owe $100,000, and can't make the payments, there will be no foreclosure, but a very quick discounted sale. This is a no foreclosure situation, period. 0 -
I agree with nunn, I would be jumping thru my azz and unloading the property at some kind of profit. The mortgage holder isn't interested in getting 'fair market value' for the property, they are only interested in the money owed them. quote:Originally posted by slipgate
Say you have a home worth $200k and owe $100k. Due to financial hardship, you don't pay the mortgage and the bank forecloses. The home goes to a foreclosure sale and sells for $190k.
What happens to the $80k? Does the bank have to give it to the former owner?0 -
Q. What happens to the $80k? Does the bank have to give it to the former owner?
A. The amount above what is owed is suppost to go to the previous owner. However if you calculate all the fees, charges and what ever else can be thought of, it is a considerable amount.
Nunn said "If I have a home worth $200,000 and owe $100,000, and can't make the payments, there will be no foreclosure, but a very quick discounted sale. This is a no foreclosure situation, period."
For some reason many people go into denial and do nothing about a forecloseure. There are services that list all the foreclosures filed every busines day. The subscribers decend on the property owners with offers to buy or loan money or list the property for sale. Still many do nothing until it is too late and the property is auctioned.0 -
You are correct. In my business I deal with a lot of people who are going through forclosure. The strangest thing is that, a lot of the time, if they had just taken action earlier, they could have avoided the entire situation. 0 -
quote:Originally posted by meunke
You are correct. In my business I deal with a lot of people who are going through forclosure. The strangest thing is that, a lot of the time, if they had just taken action earlier, they could have avoided the entire situation.
+1000000
Well said. The worst thing you can do is what most people do...they do nothing assuming that their financial position will somehow improve and they will be able to pull it out in the end. Nunn has it 100% spot on. Sell it now and convert that equity into cash. Banks are so loaded with foreclosures now that they have no incentive to try and recoup "market value". You could walk away with very little, if any cash.0 -
I've bought my last 2 homes as foreclosures. Both were 100K homes with 150K potential. I bought one for 47K and the other for 70K. More often than you'd realize folks allow the foreclosure rather than selling the home and paying off the loan.
As to your question, it has been answered it seems. The "profit" after all fees and such goes to the previous mortgage holder.0 -
quote:Originally posted by chollagardens
Q. What happens to the $80k? Does the bank have to give it to the former owner?
A. The amount above what is owed is suppost to go to the previous owner. However if you calculate all the fees, charges and what ever else can be thought of, it is a considerable amount.
And don't forget one important point. Since the "gain" is not rolled into a another homestead one could face federal tax liability.0 -
I may be wrong here but if a property is foreclosed, usually the bank repossess the property. And then sells it. In that case the bank keeps all the money they get in the transaction, and the former owner get zilch.
Except the IRS will bill the former owners for the difference between the loan amount and the selling price.0 -
Just recently, I heard Dave Ramsey (on the radio) say that 99 percent of foreclosure sales go for the amount of the mortgage. In your hypothetical (I hope) scenario, a house with that much equity should be sold by the owner ASAP before it is foreclosed on. 0 -
This is a friend of mine. His house is actually worth about $330k, he owes $111k. He has been unemployed for 3 years and has run out of cash. I was telling him his options and of course told him to NEVER allow it to go to foreclosure and to sell it before it came to that. I was pretty sure he would get the excess money from the sale but wanted to be 100% - he thought he lost it all. 0 -
quote:Originally posted by mateomasfeo
quote:Originally posted by chollagardens
Q. What happens to the $80k? Does the bank have to give it to the former owner?
A. The amount above what is owed is suppost to go to the previous owner. However if you calculate all the fees, charges and what ever else can be thought of, it is a considerable amount.
And don't forget one important point. Since the "gain" is not rolled into a another homestead one could face federal tax liability.
Rolling the gains into another home is irrelevant in capitol gains tax.
If you have lived in the house for 2 years Capitol gains are not taxed. If it's a 333k house and they only owe $111k, my guess is they lived there at least 2 years. I also doubt they are going to sell a house on foreclosure for more than they paid for it. The only thing taxed is a total sale amount higher than original purchase price minus any improvements made to the house.0 -
Sale or auction?
If a sale, many times, they are only interested in getting out of it, what they have in it. Asking price, $111k. Sold.
If auction, someone might be willing to pay more than the $111k "starting price" maybe not.
Back in the 80's, some banks were willing to take a loss, just to get rid of the house. I bought one that listed close to $200k for.......well, lets just say a LOT less. The bank wrote off the rest as a loss.
I don't think we are at that point yet, but I think we may be headed in that direction.
I doubt your friend's home is in that position. At least, I hope not. Hope he sells it himself. I am waiting for the house next door to go into foreclosure. He is too stubborn to let it go any other way. Then I'll see what the bank will take for it.0 -
quote:Originally posted by bhale187
quote:Originally posted by mateomasfeo
quote:Originally posted by chollagardens
Q. What happens to the $80k? Does the bank have to give it to the former owner?
A. The amount above what is owed is suppost to go to the previous owner. However if you calculate all the fees, charges and what ever else can be thought of, it is a considerable amount.
And don't forget one important point. Since the "gain" is not rolled into a another homestead one could face federal tax liability.
Rolling the gains into another home is irrelevant in capitol gains tax.
If you have lived in the house for 2 years Capitol gains are not taxed. If it's a 333k house and they only owe $111k, my guess is they lived there at least 2 years. I also doubt they are going to sell a house on foreclosure for more than they paid for it. The only thing taxed is a total sale amount higher than original purchase price minus any improvements made to the house.
Thanks for clarifying. Do you have a link where I can read this?0 -
quote:Rolling the gains into another home is irrelevant in capitol gains tax.
If you have lived in the house for 2 years Capitol gains are not taxed. If it's a 333k house and they only owe $111k, my guess is they lived there at least 2 years. I also doubt they are going to sell a house on foreclosure for more than they paid for it. The only thing taxed is a total sale amount higher than original purchase price minus any improvements made to the house.
I don't believe the above is actually correct. However from the sale of your primeary residence you may discount $250,000 of Capitial gains (married $500,000) every two years.0 -
Bhale is correct - on a married filing joint return, the taxpayer can exclude up to $500,000 of gain (not sale price) and on a single return, the taxpayer can exclude up to $250,000 of gain. The only requirement is that it must have been the primary residence for the taxpayer for at least 2 of the past 5 years.
One problem that sometimes occurs is if the foreclosure sale does not bring enough monies to payoff the mortgage(s). If the mortgage company writes off the remaining balance, they will send a 1099C Cancellation of Debt to the owner. Debt cancellation is taxable income unless there is a bankruptcy or if the person is insolvent. Insolvent simply means owing more than what is owned. However, a letter stating the cancellation is in relation to the sale of a residence will resolve these tax issues.0 -
yes, sell it yourself..or all the money hungry people involved in selling it out from under you will make sure they get their money and you will get nothing!!...the system sucks!! it is set up to screw you in this circumstance and to protect everyone else so they get "their" money" ! 0 -
pickenup said....."Back in the 80's, some banks were willing to take a loss, just to get rid of the house. I bought one that listed close to $200k for.......well, lets just say a LOT less. The bank wrote off the rest as a loss.
I don't think we are at that point yet, but I think we may be headed in that direction."
It's happening now. The discounts are not deep (eg. 317k seriously considering 282k offer). I believe it is called a short sale.0 -
quote:Originally posted by mateomasfeo
Thanks for clarifying. Do you have a link where I can read this?
I 'flip' my primary residence every 2 years so that's how I was aware of it. There is also a once a year exception to Capitol gains that allows you to avoid paying for profit made on a house as long as you move into another house with a higher cost than what you sold your last house for.
If you get on the IRS website under FAQ it breifly explains it.
http://www.irs.gov/faqs/faq-kw140.html0 -
If you only owe $100k on a house but the bank is able to sell it for $190k no wonder you are in financial hardship. 0 -
quote:Originally posted by bhale187
quote:Originally posted by mateomasfeo
Thanks for clarifying. Do you have a link where I can read this?
I 'flip' my primary residence every 2 years so that's how I was aware of it. There is also a once a year exception to Capitol gains that allows you to avoid paying for profit made on a house as long as you move into another house with a higher cost than what you sold your last house for.
If you get on the IRS website under FAQ it breifly explains it.
http://www.irs.gov/faqs/faq-kw140.html
Thanks to you and neocpa!!0 -
Bhale - I'll put myself at risk of looking like a fool, but I sure would like to see the regulations concerning the "once a year exceptions to the Capital gains that allows you to avoid paying for profit made on a house as long as you move into another house with a higher cost than what you sold your last house for."
The only other exception that is coming to mind is a Section 1031 exchange. However, that must be deed for deed or monies from the sale of one property held in escrow by a holding agent and then the replacement property identified within 90 days and the new purchase completed within 180 days.
If a seller receives monies not held in trust, then a 1031 does not happen.
If I was a gambling man (which I am not), I would guess what you are thinking of is the old tax law which was replaced by the current $250,000/$500,000 exclusion.
But, I have been known to be wrong before. Well, the one time I am thinking of, I actually thought I was wrong and then realized that I wasn't.[:D][:D] My wife said she knew she married Mr. Right, but just didn't realize my first name was Always.0 -
quote:Originally posted by neacpa
Bhale - I'll put myself at risk of looking like a fool, but I sure would like to see the regulations concerning the "once a year exceptions to the Capital gains that allows you to avoid paying for profit made on a house as long as you move into another house with a higher cost than what you sold your last house for."
The only other exception that is coming to mind is a Section 1031 exchange. However, that must be deed for deed or monies from the sale of one property held in escrow by a holding agent and then the replacement property identified within 90 days and the new purchase completed within 180 days.
If a seller receives monies not held in trust, then a 1031 does not happen.
If I was a gambling man (which I am not), I would guess what you are thinking of is the old tax law which was replaced by the current $250,000/$500,000 exclusion.
But, I have been known to be wrong before. Well, the one time I am thinking of, I actually thought I was wrong and then realized that I wasn't.[:D][:D] My wife said she knew she married Mr. Right, but just didn't realize my first name was Always.
That's a trick I have not tried, just had my agent tell me it's available. I'll ask her to show me the "upgrade rule", perhaps she is thinking of the pre '97 capitol gains rules.0
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