Looking for answers ending up with more questions

[tadbitconfused]

Ok, We haven't filed for bankruptcy yet, however we are in the middle of a foreclosure. we owe 300,000 on our first mortgage 45000.00 on our second mortgage, house could sell for about 285000 (if were lucky)... I have had several people interested in buying the home on a short sale?? My issue is this, what are the reprocusions to us doing this . We live in California, Will I get a 1099 for the difference? Does it clear it when we file for bankruptcy, what if I just let it go back to the banks... Can anyone give me simple no legal verbage advise... or past experiences... Please

[HHM]

The first obstacle to any short-sale is the bank has to agree to it (both the 1st and 2nd mortgage), reason being, is that the banks have to release their (sorry, legal jargon coming) encumbrance on the property in order for you to pass clear title to the buyer.

As far as future credit goes, it is generally better to let the house go within a BK because future lenders will view that as 1 event (i.e the BK and the foreclosure). Moreover, by letting the house go in the BK, no 1099 gets issued for any remaining balance that may be due on your loan once the bank forecloses.

If, for some reason, you are able to do a short sale first, and then file BK, the BK will wipe out the deficiency balance owed to the bank, but I don't think you can discharge, in the BK, the income tax liability because that liability will have been assessed. However, the tax liability can be waived if you meet the IRS standards for being involvent.

[tadbitconfused]

Thank you I completely understand your answer... I could never understand the 1099 rule... We will be filing before the house is completely forclosed on so I am not opting for the short sale... though both lenders would like us too..