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Buying or Selling a Home/Buying my son's condo in a short sale

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Expert: John Hendricks - 6/17/2009


Question
My son is unable to make the payments on his condo and I am on title to the property as a co-signer of the loan. The condo is soon to be in foreclosure. I do not have the ability nor do I want to bail out my son. Can my 101 year old mother purchase the property at the present market value which is 50 lower than what my son owes. Or can my mother give the money to a friend of mine who would then purchase it, hold it for a short time, then resell it to me. What would be legal and tax consequences of this procedure.

Answer
Dear Bob;

Thank you for taking the time to submit your question, and I appreciate your patience in waiting for my answer. I have been involved with a business venture in Mexico which has taken much of my time and I am just getting around to my e-mails.

Unfortunately Bob, there is no easy way out of this situation for you and your son. In order to buy the condo at 50% lower than what is owed on the property, you would have to do a short sale on the property. You and your son would need to contact your lender to complete the proper forms to start the process of a short sale, and the lender would have need to approve the potential short sale prior to an offer being written on the condo. Because of your mother being a family member, you would be better off from an offer stand point to have a third party act as the buyer of the property if you choose to proceed. If the condo was given back to your son afterwards, regardless of the time, there could be a gift tax assessed on the amount of the condo at the time the property was transferred to him.

Regarding the tax consequences and the lenders ability to collect a deficiency judgment against you and your son; if you and your son have not refinanced the condo during your ownership, the bank may not be able to come back at you for a deficiency, but if there was a refinance that did occurred, that benefit may not apply to your situation. As far as a tax consequence, there are some changes to the law on how the IRS will treat the loss due to the financial fiasco this past year. Under normal circumstances, the IRS could treat this as a profit situation and charge you taxes on the difference of what was owed and what the bank settled on as a payoff during the short sale or even a foreclosure. I am not a tax accountant, nor am I here to offer you legal advise in this situation. I would highly recommend you to contact your tax accountant/CPA for legal advice and a complete explanation of what you may be faced with by completing a short sale or being part of a foreclosure.

I wish there was better news for you, but really seek out the legal advice I recommended. It will save you much time, anguish, and money in the long run. Good luck!

Warmest Regards;
John Hendricks

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John Hendricks

Expertise

As a California Realtor for 23 years practicing in Marin and Sonoma Counties, it is now time to provide counsel through AllExperts.com to those who need advise in real estate. My knowledge and experience includes a wide range of resale residential real estate purchases, new home sales, income related investment properties involved in 1031 exchanges, and land. Let me help you in any of these areas...

Experience

John Hendricks has established himself as one of Marin & Sonoma Counties premier Realtors. A native Californian, John is a well-known and respected Realtor in both Marin & Sonoma Counties who has resided in the Northbay since 1976. John began his real estate career in 1986, and since then has distinguished himself as one or Northern California's top producing Realtors. Before joining Frank Howard Allen Realtors, John was an associate of the Prudential California Realty from 1990-1992 where his outstanding sales achievements earned him one of the company's highest honors, the prestigious "President's Circle Membership", presented to the top 2% of associates for sales and earning excellence. Since his association with the highly regarded Frank Howard Allen Realtors in 1992, John has once again established himself as one of his company's Top 10 Producing Realtors in Marin & Sonoma Counties for the years 1993 through 2007 and now in 2008. Five continuous years of outstanding performance has now allowed John to join 15 other Realtors in the prestigious "Lifetime Hall of Fame" for Frank Howard Allen Realtors. John established a group of professional individuals who specialize in a variety of areas in real estate called, 'Lundmark-Hendricks Fine Homes' This group of professionals are dedicated to the success of representing clients with the greatest amount of care and service when either buying or selling real estate.

Organizations
California Association of Realtors National Association of Realtors

Education/Credentials
Upon Request...

Awards and Honors
Frank Howard Allen Realtors "Hall of Fame Member" Chairman's Circle for 10 consecutive years

Past/Present Clients
Joe Louis & Sharon Sigurdson We want to thank you again for your excellent representation of interests during the recent purchase of our home in Petaluma as well as the sell of our home in Mill Valley. We had the unusual pleasure of working with you during the last year both as sellers and buyers. We felt that our interests were always paramount and that we received a very fair price for the sale of the Mill Valley house as well as our purchase of our new home. This speaks particularly well of you, because of the recent unstable and chaotic real estate market. Will Finke "Quite frankly, we came out of a very difficult situation, which time does not allow elaborating on. This was one of the greatest experiences of our lives as clients. John Hendricks is one of the top businessmen I have ever met." Bruce & Nancy Rosentreter "I chose John Hendricks to sell my house. I picked him because I thought he was professional, aggressive, and that he could get top dollar for my house. He fulfilled my expectations completely." Joy Schuelke "Since we were trying to sell a high end home in a very tough market, and in the middle of a very rainy winter, the prospects seemed quite bleak. I was convinced at the time, and am even more so now, that without John's tenure, patience, and tenacity, we would have not been able to move the property." Lynn McCarthy "I cannot stress strongly enough how impressed I was with the service provided to me by John and his group. Throughout the entire transaction, John was always available, always forthcoming with excellent advice based on his years of experience, and always willing to put in the extra effort to make this a positive experience for me. I feel lucky to have had the experience of working with him." Lea Lieurance-Turk "Thank you John for your outstanding real estate services for the past 5 years I have known you. You have made my dreams come true as far as selling and buying property."
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