Short Sale Questions

The question being asked today when it comes to foreclosures and short sales is "Do I still owe the mortgage company or bank money after either?". This may be the question of the decade or even perhaps the question of the last 50 years.

When negotiating a short sale the agreed upon price should be payment in full.Without that agreement the homeowner may be liable for a deficiency judgement. This could affect your customers credit even more.

Now the homeowner may still be required to report the difference in the amount owed and the amount settled for on their tax returns. They will most likely get a 1099 from the lender for the shortfall. It's possible that this income may not have an adverse effect since they may have been under pressure due to the current economy.

Why a 1099? When debt is forgiven it is considered income to the debtee.There are tax consequences then, thus the 1099.Let me show you an example say the bank has a mortgage for $200,000 and the bank agrees to accept $150,000. Then the borrower would have a debt forgiven of $50,000. They would then receive a 1099 for the $50,000. Now it is true that the banks are in such turmoil that they may noteven send the 1099 but that doesn't absolve the homeowner of the responsibility.Of course they need to talk to a competent tax advisor to see how it would affect them.

To add insult to injury the bank may also seek a deficiency judgement. This may seem so unfair but the big dumb greedy banks don't care. They just want their money. This why you want to negotiate a short sale price without any recourese by the mortgage company or bank at all. By the way if the property went to foreclosure the deficiency judgement could even be more than what we described above. Be sure to keep reading our blog to keep up on the latest news regarding foreclosure and short sales.

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