This is my first post, so if this has been covered in detail, forgive me.
If the seller has declared or will declare bankruptcy, should I still try to do the short sale. I have heard that you have to get permission from the bank. judge, but can the creditors do anything after that?
Also, why would sellers ever agree to do a short sale if their taxable income could go up by 50-100k in the next year? I’ve been hearing and reading about all these great short sale deals, but I don’t understand why sellers would be okay with accepting such a dramatic increase in taxable income.
I can’t answer the first part and suggest trying “Asset Protection, Legal” forum here. I bet those guys know the answer. As for the short sale and possible deficiency, sellers agree because generally it provides the most overall benefit. Yes, it is true that the bank may take them to court or 1099 them for the amount of shortfall. However, consider this situation on my short sale I’m preparing:
Homeowner makes $2,400 a month. He pays for health insurance of $400 for him and his 3 kids, child support of $500, utilities for about $100 and mortgage payment of $1,500. So, he’s left with ZERO to pay for food, school, etc. Plus credit cards for about 20K in collections, property taxes. You get the idea.
Now, what is he to do? Bankrupcy might be an option, but not a very good one. On a short sale, I’ll take the property and “give a gift” of settling all of his credit cards PLUS some moving money PLUS my accountant will prepare his tax return for free. Yes, he will “receive” income of about 60K, but he, in all probability, will not have any money to pay income tax anyway. So, what’s IRS going to do? Me and my accountant will short the IRS too ;D
I am not saying that shorting loans always is the way to go. But sometimes it is the best option available to the owner(s) even if there is a potential, and probably small (or none at all ), tax liability.
I was considering giving the homeowner I’m working with a “gift” of a couple thousand to pay her tax liability, but I wasn’t sure how I’d structure it. She’d either have to trust that I’ll pay her the money, or we’d have to work out some kind of signed agreement, perhaps a bill of sale for the stuff she’s abandoned at the house (furniture, computer, etc.).
Is this stuff above board?
Also, can you negotiate with the bank to not issue a 1099? Are they required by law to do that or can they just agree in writing not to do anything?
I heard this idea before but I would rather not put anything like that in writing. The reason is simple: with a short sale, banks ensure that the homeowner gets nothing. Once there is a papertrail, there is a papertrail.
Anyone else has done this? Would like to know you opinion.
If you are asking whether homeowner payoff is legal in a short sale, then I don’t know. I’ll tell you what. If I make 25K on a deal, I plan to buys some gifts for my friends for, say, 3K or 8K. I also like to wrap the gifts in envelopes. I’ll leave it at that
This is a little more complicated. However, my understanding is that whenever a loan is forgiven, 1099 is always issued to the borrower and shows forgiveness of debt, which is treated by IRS as income (unless, of course, judgement was obtained). To this extent, banks won’t sign anything related to 1099.
Yeah, it seems like giving a gift isn’t a big deal. There’s nothing illegal about it. It’s just whether the bank likes it or not. They can’t really stop you from giving a gift. I guess it might be possible that they found out and then sued you or the owner for fraud, but this idea would be more a result of analysis paralysis then reality. Once they complete a short sale, I would think they would want to walk away from the whole mess once and for all.
my understanding is that no money can be given back to seller on the HUD. But you can buy the appliances, window treatments… with a bill of sale – off HUD, and it will pass the smell test.
), tax liability.