If you default on your investment property mortgage payments, your lender will foreclose on the investment property and sell it at a foreclosure auction sale. You will lose your investment and ruin your credit. A foreclosure on one of your investments affects all your other investments. Your lender could take your own home, put a lien on it and your other assets to use as collateral.
There are different tax implications on an investment property foreclosure than a foreclosure on a primary residence. Also, the way you hold title to the property has important financial implications. You should check with your CPA and/or a tax attorney to find out what tax liabilities you may be subject to in connection with an investment property foreclosure.
Options for Foreclosure Help with Investment Homes
There are a number of ways that an investor can save his or her properties from going to foreclosure such as:
- Refinancing
- Reinstatement
- Deed in lieu of foreclosure
- Loan Modification
- Short Sale
- Forbearance
- Selling the property
- Filing for bankruptcy protection
If you have other assets or own other property, your options are more limited to refinancing or selling the property.
Deed in Foreclosure
Even if you are able to do a deed in lieu or short sale, if your lender forgives a part of your mortgage on your investment property or second home, that amount of the debt may be taxable or subject to a deficiency judgment.
Taxes and Foreclosured Investment Homes
If you previously depreciated the property for income tax purposes, the tax basis of your property has been lowered from its original purchase price. A short sale or deed in lieu may be treated as a “sale or exchange” which means you may be liable for paying income tax on the difference between the property value and the adjusted basis. This tax liability is not eliminated because you are insolvent or filed for bankruptcy protection.
Problems with Foreclosures on Investment Properties
The reason that there are so many foreclosures on investment properties today is that investors and speculators over extended themselves by buying properties at the height of the market that they can no longer afford to make the mortgage payments on and maintain as result of a financial hardship or current economic conditions.
Loss of tenants and loss of income revenues have created much of the financial hardships for investors as well as declining property values. Many investment properties have depreciated as much as 50% in some areas of the country. Even though many investors want to sell their properties, they cannot because they owe more on their mortgages than the properties are worth. Many investors have abandoned their vacant properties. As a result, the properties are deteriorating from lack of maintenance and also further depreciating home values in the neighborhood.
Advice and Help from an Attorney
Because of the complex nature of Foreclosure laws and binding regulations, A real estate Foreclosure Attorney can advise you on all your legal options, and defend you in a foreclosure action. Investment property foreclosure law is complicated, and you should seek the advice of an attorney.
