Will a short sale with 5 late payments make it difficult to purchase another home when I followed a court orde

Question

Ok, so I was divorced in 2006. Our house was orignally in my name (title and mortgage) only. My ex husband and I agreed (Court order) that he would take over the house and get his own financing and I would get 10K from the refinance on his new loan. I did my part and signed over the house and recieved a letter from the lending co. saying I would get 10K upon close of escrow. I asked for proof of mortgage papers such as escrow instructions, but the lending co. told me that was against the law since I am not apart of my ex's loan. Well the house never closed for his refinance. So later on I find out that I am no longer on title but I am on the mortgage. My ex husband is now on title. I contacted the lending co. and they would not help me.I lived in the house for 2 years on my own with no late payments. A hardship came my way and my ex husband and I went back to court (court order) and decided that he would pay me payments of the 10K and he would live in the house and assume the mortgage. So he moves in and pays the payment for 9 months. The house is now 5 months late on the payment, but it has been up for sale and both my first and second mortgage settled for the short sale price. I realize that I will have to do a 1099C on my taxes. My question is how long do I have to wait until I purchase another house and how long will the above disaster stay on my credit? Second question: How does the 1099 C work?

Thank you,

Noel -LomaLinda, CA

Answer 1

I do not know why you lawyer allowed you to be taken off deed, but to remain on mortgage. ( I am former Recorder of Deeds.)

You need to take the approach similar to what is done for innocent spouse in income taxes.  Even with the credit score issue, you should be able to get loan. I have done loans where spouse had credit messed up by the ex, so I know it can be done.

Answer 2

Noel the short sale will stay on your credit for 10 years but it should not affect you chances of getting a new home if you can verify the reasons you gave above. If not then it will take at least 7 years to make lenders willing to work with you.

Answer 3

It sounds like he's now violated two court orders by not living up to the terms of them.  A lender may not hold any of this against you when you go to get your own mortgage, if your credit history has been excellent otherwise.  Then again they may.  In the wake of the current mortgage mess, even creditworthy borrowers are finding it more difficult.  No one can answer this for you with any certainty.

In the case of the 1099C, make sure that the amount reported on the form as forgiven debt is only your share, since you both were on the note and should be splitting the debt equally.  Let's say the amount the bank agreed to eat was 26K.  The 1099, if it was issued to you only, should be for half of that, 13K.  If you are being shown as receiving all of the forgiven debt alone, get your attorney to get this fixed.  Forgiven debt is considered income to you, and you must pay tax on it as you would on your wages.  It isn't right for you to pay tax on all of it if you only received half of the benefit.

Answer 4

The 1099 is income, you add it to your earned income for both federal and state income tax.

This will be on your credit for 7-10 years.

You will not be buying again for awhile.