A question about a short sale in Delaware.
October 18, 2010 9:38 PM   Subscribe

My sister is going through a short sale in the state of Delaware. She's received two offers. One is fairly conventional, the person will put down 25% and finance the rest. He's offered $120k. The other offer is all cash, as is, no contingencies - but only $93,000.

She's been told by the people making the all cash offer that it won't make any difference to her credit whether the house sells for 120k or 93k, but I guess I just want to double check that. Her current loan amount is $160k, so I think that if the deficiency is $67k instead of $40k, that maybe worse for her credit. (She knows her credit will take a hit for 1-3 years already, this is an unavoidable bad spot, unfortunately.) However, we would like to help her minimize her damage.

The question is - does the sale price truly make no difference to her credit score?
posted by visual mechanic to Work & Money (8 answers total) 1 user marked this as a favorite
 
I have no idea on credit score, but it may make a difference on her taxes.
posted by fings at 9:47 PM on October 18, 2010 [1 favorite]


talk to a CPA. We are talking taxes more than credit.
posted by Ironmouth at 10:09 PM on October 18, 2010 [2 favorites]


What's the upside for taking the lower offer?
And yeah, taxes.
posted by mazienh at 4:14 AM on October 19, 2010


Isn't it fraud to lie to the bank about her highest offer? Tell her bank both options and let them choose. Taxes, etc. If Delaware is a non-recourse state there is no tax issue I believe, if it is there will be taxable income.
posted by JPD at 4:32 AM on October 19, 2010 [1 favorite]


Essentially it doesn't matter what your sister will accept, her lender has to approve the sale price and terms. I'm going through a short sale right now, and we just had an offer turned down by our lender because it wasn't high enough. The lender probably doesn't care whether the offer is cash or financed - she should accept the higher amount because it is more likely to be approved by her lender.
posted by lvanshima at 9:35 AM on October 19, 2010


Response by poster: The upside of the lower offer would be that it's all cash with no contingencies and thus more likely to happen should the bank accept it?

But yeah, to me it seems like the lower offer is too low, and why would the bank prefer it to the higher offer, which seems very legitimate and likely to work out.

She will submit both to the bank, but if the really low offer could end up hurting her more, I didn't want her to submit it at all.
posted by visual mechanic at 10:28 AM on October 19, 2010


Send both offers to the bank and let the bank sort it out.

Yes, there will probably be taxable income unless she is insolvent (and can prove it).
posted by getawaysticks at 11:36 AM on October 19, 2010


The difference to your sister between the lower and higher price is the potential for "cancellation of debt income" and the potential tax liability. The lower the purchase price, the higher the cancellation of debt income.

Info on federal tax on cancellation of debt income and exemptions:

http://www.irs.gov/newsroom/article/0,,id=174034,00.html
http://www.irs.gov/individuals/article/0,,id=179414,00.html

I wasn't able to quickly find anything on whether Delaware taxes cancellation of debt income related to a foreclosure, but your sister should be able to call and ask. The phone number is below.

http://revenue.delaware.gov/contact.shtml
posted by lvanshima at 12:26 PM on October 19, 2010


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