Replies to This Discussion

Permalink Reply by Scott Korbin on August 28, 2011 at 7:22am

the 1099 is an IRS requirement, not the bank's. he can avoid the 1099 by signing a prom note. if investor has a loss, it can be used to offset the 1099 income. advise to consult with a CPA.

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Permalink Reply by Bryant Tutas on August 28, 2011 at 8:41am

Issuing and receiving a 1099 is federal tax code. What they are seeking is never going to happen.

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Permalink Reply by Jeff Payne on August 29, 2011 at 2:34am

Harry, Scott and Bryant are right on the money! The question that needs to be asked is WHY was a 1099 not discussed before this point, like at the the listing appointment?  That is the part that scares me more because the agent should have already discussed this

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Permalink Reply by Scott Korbin on August 29, 2011 at 2:49am

Agreed Jeff. By the way,...
1. Have you seen a bank agree to NOT 1099 in a Short Sale or Deed in Lieu?  NO
2. If the bank does not 1099 they cannot write off the loss so why would they agree to this? N/A
3. Is it not Federal Law that any amount $600 or more has to 1099'd? I BELIEVE SO.
4. is it not Federal Law that just because you do not receive a 1099 does not mean you do not have to claim the income? YES

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Permalink Reply by Jeff Payne on August 29, 2011 at 2:59am

Scott,

Every short sale that I have been involved with issued a 1099.

Here is what my non legal opinion is:
1. Nope, never seen a bank not issue a 1099

2. If they do, they can not pursue a deficiency on a primary mortgage, again this is my opinion.

3. Correct

4. Correct

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Permalink Reply by Lorie Gould on August 29, 2011 at 4:23am

I completely agree Jeff.   This should not have come up at the closing table.  I am sure this is a huge lesson that she will not forget.   I just had to pose the question because she said the attorney told her that she would need to go back to the bank and seek a waiver for the 1099.   I told her that there was no way the bank would waive a 1099 nor could they legally if they are truly forgiving the balance.    She questioned my bold statement since the attorney indicated it would be possible so I had to pose the question to see if perhaps I was being short sided and others are getting a 1099 waived with full forgiveness.  It appears based on all the responses I have gotten that I spoke correctly:)  

 

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Permalink Reply by Sam on August 29, 2011 at 5:48am

I have seen quite a few issues pop up on this forum lately that should not have been issues in the first place.  Short sales are not fun, they are not without pain, they are a lesser of two evils with foreclosure being the other, more painful evil.  I could have understood a couple of years ago agents being caught in short sale issues where they were inequipped to handle, but this has been going on long enough that there is no excuse for issues like tax and deficiency issues not to be addressed early in the process.  I have no love loss for the banks trust me, but I think short sales falling apart due to mishandling by agents is the biggest drag on short sales as a whole.

Up front, broadly explain the issue of deficiency or not, how first and second liens typically respond, how that could have tax implications, and how that differs, if at all, from forclosure.  Make accountant and attorney recommendations for legal advice for their particular situation.  Once you do this, you will have an educated client that understands why short sale is better then foreclosure, and will be a willing and motivated party to the transaction, even though it may be painful.

 

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Permalink Reply by Jeff Payne on August 29, 2011 at 8:47am

Right on Sam!!!

Sam Cavanaugh said:

I have seen quite a few issues pop up on this forum lately that should not have been issues in the first place.  Short sales are not fun, they are not without pain, they are a lesser of two evils with foreclosure being the other, more painful evil.  I could have understood a couple of years ago agents being caught in short sale issues where they were inequipped to handle, but this has been going on long enough that there is no excuse for issues like tax and deficiency issues not to be addressed early in the process.  I have no love loss for the banks trust me, but I think short sales falling apart due to mishandling by agents is the biggest drag on short sales as a whole.

Up front, broadly explain the issue of deficiency or not, how first and second liens typically respond, how that could have tax implications, and how that differs, if at all, from forclosure.  Make accountant and attorney recommendations for legal advice for their particular situation.  Once you do this, you will have an educated client that understands why short sale is better then foreclosure, and will be a willing and motivated party to the transaction, even though it may be painful.

 

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Permalink Reply by Jeff Payne on August 29, 2011 at 8:49am

I never understood why someone would just take the attorney at their word.  Just because they are an attorney does not mean that they know how to handle a short sale.  Sad that an attorney would do this.  What is even sadder is that IF the lender agreed to not issue a 1099, they would most likely attach the deficiency which in my opinion is much worse than a 1099
Lorie Gould said:

I completely agree Jeff.   This should not have come up at the closing table.  I am sure this is a huge lesson that she will not forget.   I just had to pose the question because she said the attorney told her that she would need to go back to the bank and seek a waiver for the 1099.   I told her that there was no way the bank would waive a 1099 nor could they legally if they are truly forgiving the balance.    She questioned my bold statement since the attorney indicated it would be possible so I had to pose the question to see if perhaps I was being short sided and others are getting a 1099 waived with full forgiveness.  It appears based on all the responses I have gotten that I spoke correctly:)  

 

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