What happens if you sell at a loss?

[cimbom]

Hello,

Just wondering what happens in the event that I sell an IP but the sale price is only enough to say pay ~95% of the loan? What happens to the rest of the balance (and repayments) and is there any chance of negotiating with the bank to accept this amount as a full and final payment to clear it?

Sorry if this is a silly question

Thanks

 

[pinkboy]

You will have to come up with the last 5% in cash somehow to repay the Mortgagee, or you won't be able to settle the sale.

pinkboy

 

[Jess Peletier]

Pinkboy is right - you'll have to come up with the extra cash somehow. Sometimes you can organise a personal loan to cover, which can make life easy (but relatively costly) so that's an option, but without cash to contribute in some form you won't be able to settle.

 

[Terry_w]

The lender won't release the mortgage and you won't be able to settle without the mortgage discharged.

You may be able to negotiate with the mortgage to convert the shortfall into an unsecured loan, but this would generally be not easy to do and they will be unlikely to forgive debts in this situation.

 

[cimbom]

Thanks for your replies. It's just a hypothetical at this stage, as we are considering selling our IP. I guess we'll see how we go

 

[belvoir]

So if you can't come up with the difference and you can't afford the mortgage repayments the bank will move in?

 

[see_change]

So if you can't come up with the difference and you can't afford the mortgage repayments the bank will move in?

That's what they call a mortgagee in procession sale ........

Cliff

 

[pinkboy]

That's what they call a mortgagee in procession sale ........

Cliff

Do they play trumpets while marching?


pinkboy

 

[Scott No Mates]

No marching band or cheerleaders PB just a bunch of auditors with horn-rimmed glasses discussing where to linch next.

 

[albanga]

Could you value add to make up the 5%?
Maybe a cost effective cosmetic renovation and well staged could make up the shortfall?

 

[see_change]

Do they play trumpets while marching?


pinkboy

Oops .... Bring in the jazz band

Oh when the sales
Oh when the sales
Oh when the sales come marching in

Pinkboy , Can you pay that number ?

When the sales come marching in ....

Cliff

 

[see_change]

No marching band or cheerleaders PB just a bunch of auditors with horn-rimmed glasses discussing where to linch next.

Or who to cut down to size ..

Cliff

 

[Ausprop]

yes they will accept less at settlement. They will accept a haircut if you negotiate but you could also just enter into an arrangement to repay them. If you have nothing else at stake they will often just take a walk. It's definitely easier to pay them out, just depends how pushed you are.

 

[cimbom]

Does anyone know what the tax implications would be? The ATO website is a bit unclear

 

[Terry_w]

Generally the loan would be paid out at settlement so no ongoing tax issues. If you suffer a capital loss then this would be carried forward to be offset from capital gains in the future.

If you have a loan associated with the property which isn't paid out (e.g a separate LOC secured on another property) then the interest may continue to be claimed under limited circumstances.

 

[Paul@PFI]

Does anyone know what the tax implications would be? The ATO website is a bit unclear

Zero. I believe he said its his home. In any event the amount you repay on the loan after sale has no bearing for CGT.

 

[beachgurl]

I sold at a loss but as the loan was cross securitised with another property, they just did a val on that one to see if it could cop the loss. Not ideal to sell in these circumstances but I understand when sometimes it's best to shoot the dog.