+ Reply to Thread
Results 1 to 11 of 11
  1. #1

    Short Sale - 2nd loan: charge off or settle

    What is the name of your state? South Carolina

    I have a short sale with CitiMortgage (primary) and an outstanding 2nd mortgage of $95K with Chase - which I am not going to cover the balance for. Chase gave me 3 options in order to cooperate with the Short sale:
    1) Pay a cash settlement of 10% ($9K)
    2) Agree to a payment arrangement of 20% ($18K)
    3) Tell them to "charge-off" the balance and proceed with the short sale.

    My question is if I'm already 6 months no-payments on the loan and my credit is destroyed why bother throwing more $$ at the problem and settling what is owed (even if it's only 10% of the loan). Should I just take the "charge-off" hit and save my money for better days?

    Also, is there any risk of legal action given the state of foreclosures right now?

  2. #2
    Join Date
    Sep 2006
    Missouri Ozarks
    Tell them to charge off the balance so they can seek a judgment against you for the full $95,000 plus interest and legal fees.

    Obviously, you want to take option 1 or 2.

  3. #3
    Join Date
    Oct 2005
    Ohio (southwest)
    I believe if they "charge off" the bad debt, you will receive a 1099 and have to declare the $95,000 as income and pay incomes taxes on it. Anyone know for sure?

    I'd take option #1 in a heart beat!

  4. #4
    Join Date
    Feb 2005
    Elgin, IL USA
    If "charge off" means the same thing it does for credit cards, it does not mean it is forgiven. It means it is no longer current and has gone to collections for further action.

    If you take option 1 or 2, they will send a 1099 for the amount of forgiven debt, but the debt relief act makes that not taxable if it is for your primary residence [url]http://www.irs.gov/individuals/article/0,,id=179414,00.html[/url]

  5. #5
    I was under the impression that given the current state of foreclosures, banks were not bothering to seek judgements for "smaller" loans like mine. I could obviously be grossly misinformed, which is why I was posting to this site in the first place.

    Am I seriously running any risk of further action if I allow them to "charge off" the loan?

  6. #6
    Join Date
    Sep 2006
    Missouri Ozarks
    Yes. Seriously.

    You want to save your money for a better day by defaulting on your promise to pay back what you borrowed--or even a portion of what you borrowed. Meanwhile, those of us who are financially responsible enough to avoid buying more than we can afford end up paying for your loan default.

  7. #7
    Join Date
    Feb 2007
    Charging off changes nothing to you. You were in default before, you are still in default. The debt may be sold to a collection agency and still attempts be made to collect it. All charging off means is that internally the credit card company no longer considers your account to be a receivable asset for their business purposes.

  8. #8
    Join Date
    Jun 2008
    If you go with the charge off, it all depends on how the lender reports the "debt relief". It may be reported via a 1099 and you could be liable to pay income tax. It could also be reported as non-recourse debt in which they would not issue you a 1099. There are other ways to relieve yourself of the tax ramifications, insolvency being one possibility. You should seek the help of a real estate agent that has done short sells as they are very tedious, as well as the advice of a CPA that has worked with people that have done short sells. There are significant legal and tax ramifications possible. You need to educate yourself and be sure that this is the best option for you. Unfortunately, there are a lot of people that have found themselves in a short sell situation due to prior ignorance in securing stable loans and educating themselves about their own financial limitations.

  9. #9
    Thanks everyone for your comments...

    But I would like to add one more clarification in order to make the best informed decision.
    My situation is I was part of an LLC that folded before rental properties were deeded to the LLC's name (which means I have 2 properties plus my primary in my name). I make roughly $80K and have close to $1million in real estate - $800K in default (including the short sale)

    So what I was originally intended to get at with my post is: If I can show that I don't have 2 pennies to rub together, will a collection agency make a whole-hearted effort at coming after me for some type of settlement or realize I have no ability to pay and move on?

    The other aspect I am unsure about is will they only consider my income as the 2 properties in default are only in my name - so my wife is protected from all of this?

  10. #10
    Join Date
    Feb 2007
    A charge-off is not necessarily (and usually is NOT) debt forgiveness.

    Forgiving is very likely to be taxable here as you state.

  11. #11
    update: Chase was playing hard ball and said not to bother attempting to settle for anything less than 10% ($9K) or they will reject the offer and just "charge off" the account.
    I told them I can only come up with $4K and nothing else - so take it or go ahead and charge off...and what do you know, they accepted the offer. Not sure if they woud have taken even less.

    I was wondering if there is anyway to negotiate over how they report the settlement regarding my credit or the 1099 they can send me due to "forgiving" the debt. Do I have any way to avoid the 1099?

+ Reply to Thread

Similar Threads

  1. Replies: 10
    Last Post: 03-28-2011, 03:41 PM
  2. Short sale denied after months, 24 hours before trustee's sale
    By alexislg in forum Other Real Estate Law Questions
    Replies: 1
    Last Post: 08-16-2010, 04:27 PM
  3. First loan approved for short sale, second loan(secured) not negotiating. What to do?
    By detazye in forum Mortgages, Refinancing & Foreclosure
    Replies: 2
    Last Post: 03-23-2010, 12:59 PM
  4. short sale or loan modification?
    By mtpockets in forum Mortgages, Refinancing & Foreclosure
    Replies: 4
    Last Post: 11-24-2008, 02:13 PM
  5. Replies: 3
    Last Post: 04-11-2008, 11:12 PM

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts

© Since 1995 Advice Company, All Rights Reserved

FreeAdvice® has been providing millions of consumers with outstanding advice, free, since 1995. While not a substitute for personal advice from a licensed professional, it is available AS IS, subject to our Disclaimer and Terms & Conditions Of Use.