Resolved Question: How are you taxed on newly built, rental property that has a substantial amount of equity built in?

We have 2 mortgages (1st & 2nd), my friend withdrew an other line of equity. What happens to the equity line loan if we sell this house short? Can we ask the bank to convert equity loan to personal loan and we continue to pay for it? Sorry that I was not clear in the question. Basically, on this house, we have 3 loans: 1st mortgage with mortgage company A, 2nd mortgage with mortgage company B (we used 100% financing when bought this house), and the equity loan with a bank (3rd loan that my friend' sister took out to do something else.)

Now we have problem with the first loan since it is ARM (we didn't know when signing paper). The rate is reset, we start having problem to pay for it. We want to short sell the house, but not sure what to do with the 3rd loan: the equity loan. For the 1st / 2nd, we may have to pay the tax if the banks agree to let us short-sell the house and issue the 1099-C, but because the third loan (equity loan) is from another bank we are not sure if this bank agrees to release for us to sell the house or willing to renegotiate the loan for us to pay as personal loan.

Resolved Question: Does a Seller care if your Down Payment is from a Loan???

We have two homes. We are selling one of them. We are thinking of taking out a HELOC (Home Equity Line of Credit) Loan (against the home we are NOT selling) to use as a down payment on a "3rd House." I'm just curious ... does the Seller (of the 3rd House) care that your down payment is in the form of a LOAN? Or, as long as you're qualified (in the eyes of the bank) it doesn't really matter to them? Thanks for your thoughts!

Voting Question: What's the better choice? A home equity loan or an equity line of credit?

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