h asked:


my realtor has been working toward making this shortsale happen and finally the bank decided to accept it. however, due to other house sale that didn’t go successfuly (and it’s going through foreclosure process), my bankruptcy lawyer advised i shouldn’t go for any shortsale, but to let foreclose (so i can file bankruptcy and be tax free for such loss).

realtor asked i sign a statement and fax to him stating ‘i am accepting $197k for a house sale price $220k. i at first didn’t want to go for shortsale, and when realtor told me ‘if you cancel out this shortsale (as we still got the buyer to buy, and bank that is willing to accept the pkg), my broker agency is to charge you the fees incured’.

my lawyer told me that we could add that realtor bill to bankruptcy.

now what do i do?

few lawyers i asked told me that shortsale will cause 1099c tax consequence. that’s gonna be tons of money for me to pay irs. bank prob. is getting nuf $ with my interests and foreclosure…
lawyer today told me to fax my realtor a letter stating ‘i withdraw what i said yesterday’. so i did that…

strange, my realtor told me that my 1st lender isn’t to charge me any 1099c. i asked if i can have it in writing but he won’t give that to me.

Allan

4 Responses to “dilemas – shortsale or not to short sale that’s the question?”

1. Star on January 28th, 2009 7:44 am

   Your real dilemma is – do you want a foreclosure AND a bankruptcy on your record? Or do you want to pay the taxes on the $23K (the taxes won’t be that much money if you don’t earn too much money – which apparently you don’t if you have all these bills, etc.). It’s going to be taxed as regular income.

   Your realtor isn’t going to know whether the bank will or won’t send you a 1099 – unless your realtor is actually working for the bank (is the bank’s realtor).

   If I were in your shoes, I would want to avoid both. You can work with the IRS re: your tax bill (deferred payments, etc.)

2. Hopeful Home Solutions on January 30th, 2009 5:10 pm

   Call the bank loss mitigation officer that is handling your case, and ask him/her if they are going to file a 1099 for the short sale difference. If they say they are not going to pursue it, ask for that in writing from the bank directly. Don’t go through your realtor to ask this question. Your realtor may be lying to try and get you to go ahead with the short sale (and get some sort of commission). Also, talk with a tax lawyer to see what kind of difference you’re looking at with either the short sale or foreclosure route.

   That being said, if you can avoid a foreclosure with a short sale, I’d recommend the short sale a hundred times over the foreclosure. With a foreclosure on your record, your credit will be ruined for a very long time, and you won’t be able to buy another house for seven years. While a short sale will negatively affect your credit too, it won’t be for seven years, and it won’t be as devastating.

   Wasn’t sure by your second sentence if you had another house besides the short sale one that was being foreclosed on. If you do, what state are you in? I help people with real estate challenges so that their house doesn’t go to foreclosure.

   Good Luck either way!

3. godged on January 30th, 2009 6:54 pm

   Some lenders file a 1099, some don’t. What the 1099 will do is show the difference between what was owed and what you received from the short sale as income. Nice attitude toward the bank, “is getting nuf $ with my interests and foreclosure” – they didn’t want to foreclose, believe me. They would have made money on you paying your obligations, not on a bankruptcy, foreclosure and/or short sale. The bank doesn’t make a dime difference if they file a 1099 on you.

   If the Realtor found you a buyer and you are backing out, they certainly can charge the fees involved in processing the sale.

   Your situation is a mess. You have professionals working with you and you should take their advice.

4. Traverse City Agent on February 1st, 2009 12:08 pm

   Regardless of weather the property is foreclosed upon or you do a short sale, if the bank accepts less than the amount owed on the mortgage, you will get a 1099. The difference is once the bank does the foreclosure, they have added expenses they will be adding to the amount owed them.

   What doesn’t make sense to me is that if you can do a bankruptcy after foreclosure that you couldn’t do one with the short sale.

   IRS Website:
   “Borrowers whose debt is reduced or eliminated receive a year-end statement (Form 1099-C) from their lender. By law, this form must show the amount of debt forgiven and the fair market value of property given up through foreclosure. Though the winning bid at a foreclosure auction is normally a property’s fair market value, it may not necessarily reflect its true value in some cases.”

   The tax laws changed 9/17/07.
   IRS WEBSITE:
   “Under the tax law, if the debt wiped out through foreclosure exceeds the value of the property, the difference is normally taxable income. But a special rule allows insolvent borrowers to offset that income to the extent their liabilities exceed their assets.

   The IRS cautions that under the law, relief may be limited or unavailable in some situations where, for example, part or all of a home was ever used for business or rented out.”

   You should review the IRS tax link below.