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Ask to see a copy of the satisfaction the lender will file in public records - it may satisfy your seller - see below.
If a lender satisfies the mortgage and removes the lien to allow a short sale, and 1099s the borrower for the difference, how can they come after the borrower later? The debt is gone, the lien is gone - they even told the US Gov't that they forgave the debt completely (via 1099). Are you going to pay taxes on a forgiven debt that wasn't really forgiven?
I hear "deficiency" thrown around too often. To me a deficiency is associated with a foreclosure - not a short sale. They might ask a borrower to sign an unsecured note for a negotiated amount - but that is not a deficiency in my book. Only a judge can order a deficiency judgement.
If anybody has other ideas I am very open. They might come after you on the original note - but not if they 1099 you, and not if they file a satisfaction related to the note. Go look at the satisfaction filed on one of your old short sales - here is what is in the public record on one of mine from 2005. "Holder hereby certifies as to the full payment and satisfaction of said mortgage deed and note, and surrenders same as canceled, and hereby directs same be canceled of record." This makes it clear to me that there is no more debt at all - they cannot claim any further rights.
Please note that this is a Florida case and Florida is a judicial foreclosure state.
Phil
Phil -- I am 99% certain the Lender can do either a 1099 OR file for deficiency, but not both. Given a choice, both can be cleared though the tax issue is usually easier as I understand it (the Seller can file IRS Form 982 to get out of tax consequences if eligible, Google "IRS Form 982" and have them go see their accountant).
Deficiency - these can usually get waived by throwing some cash out to the lender either at closing, or, sometime down the road.
I have been told MANY times the ivenstor will very rarely go after the Seller, primarily b/c of logistics (they need to hire an attorney, trck down your Seller, verify he/she HAS the deficiency amount, file and win in court, then, try to collect......all the whil HOPING the Seller does not file bankruptcy or learn how to protect assets)
Phil Hanner said:Ask to see a copy of the satisfaction the lender will file in public records - it may satisfy your seller - see below.
If a lender satisfies the mortgage and removes the lien to allow a short sale, and 1099s the borrower for the difference, how can they come after the borrower later? The debt is gone, the lien is gone - they even told the US Gov't that they forgave the debt completely (via 1099). Are you going to pay taxes on a forgiven debt that wasn't really forgiven?
I hear "deficiency" thrown around too often. To me a deficiency is associated with a foreclosure - not a short sale. They might ask a borrower to sign an unsecured note for a negotiated amount - but that is not a deficiency in my book. Only a judge can order a deficiency judgement.
If anybody has other ideas I am very open. They might come after you on the original note - but not if they 1099 you, and not if they file a satisfaction related to the note. Go look at the satisfaction filed on one of your old short sales - here is what is in the public record on one of mine from 2005. "Holder hereby certifies as to the full payment and satisfaction of said mortgage deed and note, and surrenders same as canceled, and hereby directs same be canceled of record." This makes it clear to me that there is no more debt at all - they cannot claim any further rights.
Please note that this is a Florida case and Florida is a judicial foreclosure state.
Phil
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