Legal Question in Real Estate Law in California
short refinance worries
we've been approve for a short refinance with my previews mortgage bank, my loan amount is $480,000.00 to $203,700.00 they agreed to take the loss as to their letter. but at the bottom of the letter says '' Please be advised that the remaining balance will be charge-off and may reflect negatively on the customer's credit report.'' my question is on this statement can they still charge us with the difference, the amount they loss on the property?
2 Answers from Attorneys
Re: short refinance worries
"Forgiveness of debt" is typically treated as income to the debtor. This requires the debtor to pay taxes on the amount forgiven (which can be devastating). There have been laws passed recently that make such 'forgiveness of debt' exempt from income tax obligations. There are many conditions and restrictions - and the original laws may have expired at the end of 2008. Speak to a tax professional - and you will probably get a more detailed response here on lawguru, too.
Re: short refinance worries
The term "charge-off" means that the lender will be writing this amount "off" of their books and taking it as a loss. If they refi the property and you don't sign anything that says you still owe the difference to the lender, they can't later try to collect that amount, although they may report to the national credit bureaus that they have "charged-off" the debt; that notation on you credit report may negatively impact your credit rating.
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