Short Selling Home, Can bank go after retirement account?
Friday, September 3rd, 2010 at
6:40 pm
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Filed under: Retirement Communities
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If it’s a 401k or 403b or 503c3 plan, it is protected absolutely by Federal law. If it’s an IRA, it depends on state law. Penna. law exempts only $15,000 of IRA assets, but Florida exempts an unlimited amount. Some people will tell you that IRAs are now protected as a result of a 2005 law, but that is only in cases of bankruptcy.
I’m sorry you’re having to worry about this.
First, your father has to have the banks approval to even do a short sale. Second, most of the time short sales never see a closing..they take months and the bank usually drags their feet sending the property into foreclosure.
Third, since this is a investment property, the bank will go after your father for any shortfall. Since it is not his primary residence, non recourse laws do not apply here. They may either go after him directly, or they may forgive the shortfall but send him a 1099 that he will have to report as income on his taxes. That will most likely make him stuck owing the IRS.
He needs to ask an attorney if this happens if the IRS can seize any of his retirement.
First of all, nobody can touch retirement accounts to settle debts of any kind.
Secondly, short sale is something the bank has to agree to. In other words, your father will offer the bank that they let the house sell for 800k and swallow the difference as an unrecoverable loss.
Their alternative is a foreclosure that will end up with the bank taking possession of the house and selling it on the market for presumably the same $800k.
What do you think the bank will choose? The difference between the two scenarios is that if they foreclose, they incur legal fees, but gain the ability to go after the borrower to collect the difference and all the legal costs. The difference can be collected by placing liens on his other properties. I think it’s obvious that short sale is not going to happen in this case.