Pre-foreclosure Sale Vs. Deed In Lieu
I live in Colorado. Our home is going through a pre-foreclosure sale, no buyers yet. Is it better to let it go to deed in lieu than to sell it at pre-foreclosure? What beneifits are there tax wise for deed in lieu vs. pre-foreclosure? Mortage company said something about a 1099 at the end of year if we sell in pre-foreclosure. The price difference between sale price of home and what we owe on mortage is $40,000. There are no 2nd's or lein on property. Does anyone know anything about this?
Lenders rarely accept a deed in lieu of foreclosure.
Insofar as a 1099, forgiven debt is forgiven debt whether it's via a PFSS or a DIL. In an overwhelming majority of short sales, the Sellers are insolvent and the 'income' resulting from the forgiven debt is exempt from tax.
[addsig]
We have an FHA loan and HUD all ready approved the pre-foreclosure sale. If the home does not sell in 90 days then they said the next step is a deed in lieu. So is this pretty much how the process works? Is it better to have a pre-foreclosure on your credit or a deed in lieu? Which one is the least expensive come tax time?[ Edited by c_broad on Date 11/09/2004 ]
The tax consequences should be the same for either scenario. Creditwise, I think a PFSS would be better in that you did what you could do to mitigate the situation instead of simply dumping the mess in the lender's lap.
As stated previously, a DIL is rare. The lender and the FHA would rather see a preforeclosure short sale...
They have prequalified your situation (not necessarily the "sale" since you are not yet under contract to sell) for a preforeclosure sale... now you've got to find a buyer to comply with the conditions of an FHA approved PFSS.
Have they ordered and confirmed the results of a BPO or appraisal?
Make certain that your home is listed per the restrictive provisions required by the FHA, and that it's priced properly and priced to sell. The asking price should be about 90% of the lender's BPO or appraised value since the FHA will whave to NET between 82% and 87% of the property's confirmed value.
You'll need a estate broker broker experienced in the facilitation of preforeclosure short sales. If you are unsure about the qualifications of your broker, and need a referral, let us know.
[addsig]