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Harry, my short sale letter specifically states "there will be no further collection activites associated with any such "forgiven" amount." Agree that I am safe?
Harry, I do not think approval letters that say they are issuing a 1099c omit verbiage like the one that was in my approval letter so they can try to collect later. My guess is that it has never happened. If you are so risk averse you will scare clients about things that probably have never occurred.
I also believe you are playing on words. I stand by the fact that a 1099c unequivocally waives all rights of the lender to later come back and pursue the money forgiven.
What you are talking about is the lenders right to amend or negate a 1099c. That right probably exists but I doubt it has ever been done except for legitimate mistakes.
This conversation is looking to get a little hot and I am wading into a rather deep pool with my very 1st post.
Allow me to present a scenario to you:
Seller Joe sells his property for $150k which includes Joe bringing $2500 cash at close and his unpaid bal. is $200k and gets 1099c for $50k.
Investor reserves right to pursue.
Investor subsequently discovers Joe was sitting on substantial liquid assets and alleges fraud on Joe's part.
My point is that all of this hand wringing over right to pursue and obtaining a written waiver is quite over wrought UNLESS there is fraud.
Show of hands here, how many cases do all of you know where the investor is pursuing the deficiency? Serious question, not trying to be smart. I know of none, but that's just me.
Deal with the 1099C and whatever forgiveness the laws allow and move along. Tempest in a teapot in my humble yadda yadda. Please folks, calm your sellers nerves over not getting the written waiver.
And Yes, technically, BOTH could happen, obviously. 1099c and pursuit. Well the 1099c is GONNA happen. The pursuit...ehh
This is what I was sent:
"A 1099-C is not forgiving a debt. It is a cancellation of the debt. It means they have ended collection effort and filed the amount as a loss against their tax debt as if they had paid your debt out of their pockets (which is effectively what they did). The IRS treats this as them having given you the money to pay the debt, and that becomes part of your income amount. Your will generally owe taxes on that. How much depends on your overall financial situation. If you are insolvent, you probably won't owe any taxes.
They can still treat the debt as a basis for refusing to do business with you in the future. For example, that bank may refuse to loan you money, or even open an account with you, forever.
The amount of the short sale would be applied against the original debt and that much is effectively paid. The amount they "give" you as stated in the 1099-C is also to be applied against the debt. If this results in a zero balance, then the debt is done. If what they "give" you is considered a new loan, then it isn't income and a 1099-C is not applicable. If they "give" it to you not as a loan, then it is income. It cannot be both income and debt. It has to be one or the other (or, in theory, a split mix, but I don't see how that benefits them, or why they would bother doing something that strange).
A 1099-C is typically used in debt settlements for the remaining unpaid amount. If you settle a $5000 debt with $3000 payment, the remaining $2000 is a debt cancellation, a loss they count against their taxes. This is why when people dispute a debt amount, they should never just "settle" for a lesser payment, but make an agreement that the amount is corrected and then pay that in full."
I'd like to ask the IRS - regarding rescinding a 1099-C. How would you give someone "income" (which is the cancelled debt), then take it back? That's like your employer paying you $10,000 bonus, then rescinding it the following year... I guess it could be done, but what would the process be. It might be a good question for the IRS.
Fair enough Jeff. I'm actually done on the topic. Just to clarify my final opinion, I believe that a 1099C unequivocally makes the lender unable to pursue it further.
I think that other poster was saying that a lender can amend or negate a 1099c which I am sure they can, in which case would mean that a lender can pursue after issuing a 1099c by amending or negating it.
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