How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Megan C Your Own Question

Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 13480
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
23669918
Type Your Finance Question Here...
Megan C is online now
A new question is answered every 9 seconds

Parents own 2-houses, NY & FL. NY is primary, FL is investment/rental.

Resolved Question:

Parents own 2-houses, NY & FL. NY is primary, FL is investment/rental. I advised my parents to get rid of FL house because of following: $417k Int-only mortgage terms set to end 2017, House currently worth $325k was as low as $250k in 2008, monthly mortgage $2815(tenant pays $2300), Annual taxes $6500, Home owners association dues-$850/mth, Since 2008 dumped $200k in property using all assets(second mortgage,stocks,mutual funds,kids) plus maxed out all credit cards, They have used funds for NY home to pay additional monthly FL pmts, They filed for bankruptsy in 2010, They are two mths behind on NY home, dad works odd jobs, mom sells real estate (bad due to economy), dad has small pension $330/mth, both on social security, both in early 70's. They want to sell NY home and use proceeds to move in FL house. They say markets will go up, but I see jumbo loan as problem. I don't think they will get a bank to refi even with proceeds of 50-60k from NY home in their names. They want kids to refi FL house. They are worried about the 200k lost so far. Tenant lease up in July 2014, property taxes due 5/2014. I offered to purchase another home in FL in kids name with her NY proceeds where they would live. They are very stubborn and say I don't know what I am talking about. Is there any hope for the FL house. I worry the NY home will suffer if FL house not let go and they may lose both. They have other members of family believing they are right about the course currently on. Their kids all own houses and is not financially dependent on parents. How can they get out of the FL house if not viable and what are the consequencies. Thanks
Submitted: 10 months ago.
Category: Finance
Expert:  Megan C replied 10 months ago.

Megan C :

Thank you for your question, and thanks for using JustAnswer.com

Megan C :

Unfortunately, I side with you in that your parents cannot really afford the Florida home. The payment is very high, and if their income is fixed they need to be in something more affordable. If they want to move to Florida, I would take the funds from the NY home and purchase a condo - something small, low upkeep, and more affordable.

Megan C :

They can get out of the Florida home by either doing a deed in lieu of foreclosure, a short sale, or allowing the bank to foreclose. The consequence is that if the debt is recourse debt, and the lender cancels the debt, your parents would have cancellation of debt income. They can get around this if they are insolvent (their assets are less than their liabilities immediately before the debt is cancelled)

Megan C :

They would also likely have a loss on the sale, which would help their tax situation. Even if it's foreclosed, it's deemed a sale and gains/losses would be calculated. As this was a rental, the loss could be ordinary which would help them in the event they had cancellation of debt income.

Customer:

You used the word "unfortunately" in your answer. I have no financial gain in this. I only want to do whats best for my parents. If a foreclosure or short sale is used, will they be liable to the federal government for taxes and will the bank come after them for anything short of the full $417k.

Megan C :

Whether or not they are liable to the federal government for taxes, depends on the nature of their loan, and how much of the loan is left outstanding after the bank takes the property - meaning, the property will go against the loan balance. If the debt is nonrecourse, meaning that the lender can only take the property and nothing else (can't come back after your parents for the balance) then no federal tax would be due, and the bank would not be able to come after them.

Megan C :

If the debt is recourse debt, then the lender could pursue them for any shortfall between the property value and the outstanding loan balance. In this case, federal taxes could also be due. However, your parents can get around the federal tax issue if they are insolvent, meaning that their liabilities are greater than their assets immediately before the debt is forgiven.

Megan C :

I can't say with certainty that the bank will come after them. That all depends on the nature of their loan (recourse vs nonrecourse) and the bank's policy. Some banks don't even try.

Customer:

Megan, this will apply for both a foreclosure or short sale or is there a difference. How does one find out if the loan is a recourse or non-recourse type

Megan C :

Both will apply for foreclosure or short sale. You would find out if it is recourse or nonrecourse debt by reviewing their loan documents. The bank may also be able to tell you, but I would have a lawyer look at the loan documents and tell you with certainty

Megan C :

Most rental property loans are recourse.

Customer:

Thanks Megan, I will contact this site again if needed. I hope you don't think I am some kind of a monster by seeking information this way.

Megan C :

No, you are doing the right thing. There's nothing wrong with letting a property go back. Many businesses do that on a daily basis...it's not bad at all. You have to do what you have to do to survive.

Megan C :

It's a smart business decision to let the house go back, provided you plan for the consequence.

Megan C :

If you need anything else, you can contact me directly

Megan C :

Before you leave, please take a moment to rate my response as "excellent" so that I may receive credit for assisting you today

Customer:

Thanks again Megan. They did see a lawyer three years ago and was told to just collect rent and walk away, but they said they could not just walk away from their obligations. How can they end this easily with a tenant. Should they inform the tenant if foreclosure or shartsale is about to take place or just like the lawyer said collect rent until it is time to end the lease. Is there anyway to capture the information you just gave me in order to show my parents.

Megan C :

If they have a tenant, once the bank takes the house they will either evict the tenant or collect rent from them, Your parents should continue to collect rent, until the bank owns the property

Megan C :

Also, you can use your browsers print function for this, or the chat will be emailed to you once you rate as "excellent"

Customer:

If my parents decide to do the above. Does the tenant have to know by law or can they just not renew the lease. They got advise from the bankruptsy lawyer three years ago to just collect rent and walk way. Is that still a good solution. How can I capture the advise given to show my parents.

Megan C :

You don't have to tell the tenant anything - the bank will take care of that once they own the property. It's still a good solution to save up the rent money until the bank takes the property. This will help them purchase their new property. You can capture this by using your browser's print function, or the chat log will be emailed to you once you rate the answer

Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 13480
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and 8 other Finance Specialists are ready to help you
Expert:  Megan C replied 10 months ago.
Thanks so much for your positive rating. Please come back and visit me any time you have a question that needs answered. It was a pleasure working with you today.

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Rakhi Vasavada

    Financial and Legal Consultant

    Satisfied Customers:

    2073
    Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
< Last | Next >
  • http://ww2.justanswer.com/uploads/RA/rakhi.v/2012-7-3_14374_RakhiVasavadaL.64x64.jpeg Rakhi Vasavada's Avatar

    Rakhi Vasavada

    Financial and Legal Consultant

    Satisfied Customers:

    2073
    Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
  • http://ww2.justanswer.com/uploads/BU/BusinessTutor/2012-2-2_115741_Kouki2.64x64.jpg Manal Elkhoshkhany's Avatar

    Manal Elkhoshkhany

    Tutor

    Satisfied Customers:

    1890
    More than 5000 online tutoring sessions.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    1755
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JK/jkcpa/2011-1-16_182614_jkcpa.64x64.jpg JKCPA's Avatar

    JKCPA

    CPA

    Satisfied Customers:

    838
    Bachelors degree and CPA with Accounting experience.
  • http://ww2.justanswer.com/uploads/starside8/2010-2-16_55433_DSCN1175.JPG Eric's Avatar

    Eric

    Financial Manager

    Satisfied Customers:

    558
    Loan servicing, counseling and real estate expert. Foreclosure Expert and Financial Planner.
  • http://ww2.justanswer.com/uploads/FA/fastfile/2011-12-15_23139_Klein2011small.64x64.jpg R. Klein, EA's Avatar

    R. Klein, EA

    Accountant

    Satisfied Customers:

    397
    Intuit Ask a Tax Expert. QuickBooks Certified Pro Advisor (all editions)
  • http://ww2.justanswer.com/uploads/dkaplun/2009-05-17_173121_headshot_1_2.jpg Dimitry K., Esq.'s Avatar

    Dimitry K., Esq.

    Attorney

    Satisfied Customers:

    324
    NASD Licensed Rep, 1997-2001, Business Attorney