San Diego Housing Bubble News and Analysis

Short sale affects credit less.
Generally lower fico hit and the GSE'(fannie and freddie)s have a short moratorium on purchasing after (like 2 years).
This is in contrast to foreclosure/deed in lieu which has a 5-8 year moratorium.

If the loan is non-recourse, either of these will erase the debt.
If the loan is recourse, the process of recovering money will be more costly. The amount that the lender pursues the borrower for will likely be higher with an REO than with a short.
Also, there are ways to declare the recourse loan non-recourse that are more feasible in a short (if you need a legal referral for that let me know).

Bottom line, shorts tend to be less destructive but are (much) more of a pain in the ass. Foreclosing involves essentially doing nothing and just changing your phone number (collection calls). I actually teach a course on making this decision and the inertia of a foreclosure vs the stress of a short is the biggest decider.

OT: so my broker wants us to resurrect the foreclosure tours. What does everybody think of the name "REO Speedwagon"?

Just a thought.

Oh and taxes:

The amount of forgiveness is what is taxed.

The irs came out with guidelines that do not tax debt forgiveness for your home. I don't know the rule for rental property.

The state finally came out with a law in August 08 that does the same for CA but only covered 08 and 07.

I expect that there will be one for CA in like November covering 09. Nice.

bump

because I get asked this question a lot

You may want to read up on the federal laws regarding debt forgiveness. The debt forgiveness act has substantial restrictions with regards to tax law. Not all debt that is forgiven goes untaxed.

Thanks for the comments!
So if somebody gets foreclosed on, they basically have to rent for over 5 years (oh the horror!!! )?

IMHO (Being a current FB myself) if I wanted to protect my credit I would have kept current on payments and then did a short sale. But then I'd have good credit and no down payment vs. not paying mortgage to save up before getting kicked out, so I have elected to go the foreclosure route for primary residence. The wife will have to qualify for the next place on her own, with a hefty down payment.

UrbanR has a good point on the "pain in the ass" of a shortsale, I've heard bad things from friends.

FYI: Bailout bill extended the mortgage debt relief act till Jan 1 2013.

Like I said, you definitely want to check in on the tax liability. You carry a possible tax liability regardless of whether you perform a short sale, go through a foreclosure, or even execute a deed in lieu of foreclosure.

Not many people know this. You may want to seriously review the Mortgage Debt Relief Act. I would advise you to or work with an accountant who is experienced with it.

Pain in the ass shortsales are a pain in the ass but if you have a good agent it makes it alot less of a pain in the ass. Again though, regardless of short selling or foreclosing don't be blind to the IRS. If you are going BK or can prove insolvency then you are good to go.

SDR: Thanks for all your help over the time, I'm mostly a lurker here but post now and again, always notice your willingness to help me and others.

When the time comes for us to buy again, and if it's in San Diego I'd like to see if you're interested in being our agent? Maybe you can PM me with your contact info (does this forum allow that?) or post it here if you're OK with that?

PS Yeap I went BK because of rental obligations so I'm covered both federal and state. /sarcastic Yeah/

urbanrealtor - I'm interested in getting a legal referral from you...been talking to a few real estate attorneys who don't seem too competent. Thanks!