Consumption and Real Estate
If you obtained a cash out refinance what happens when it ends up in foreclosure?
Question : If you obtained a cash out refinance what happens when it ends up in foreclosure?
Example: You refinance with $ 200,000 cash out & house appraises at $ 650,000. The loan is $ 520,000. Value of property drops to $ 450K so you can’t refi; the cash has been spent & now it is going into foreclosure. What will bank do?
cash out refinance
Best answer:
Answer by src50
The bank will foreclose – just like any other foreclosure. The “cash out” refi has nothing to do with it.
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#3 written by I Buy And Sell Houses 1 year ago
Same as with any other foreclosure.
It’ll foreclose. It now owns the property, currently worth about $ 450,000.
It’ll determine the value of the property through a BPO (broker’s price opinion). It will then list the home with a Realtor, probably for a price around the BPO. Assuming your estimate is correct, the BPO would be around $ 450,000. Then, on a regular schedule, it’ll drop the price of the home. For example, perhaps every 45 days it’ll drop the price by $ 10,000. At some point, someone will come along and buy it.
As for the owner of the home, the foreclosure transfers ownership of the home. And it’s a black mark on the owner’s credit. Once the foreclosure occurs, the owner no longer has a right to live there, and must move.
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From the bank’s point of view, the have a loan for $ 520K and property worth $ 450K, so they have a bad debt against you for $ 70K. They can sue you for the difference or issue you a 1099-C for $ 70K.
From your point of view, you sold the house back to the bank for $ 450K and have cancelled debt income of $ 70K. You calculate your gain/loss on the property using the $ 450K number. You can have taxable income from both.