That pretty much what i fugured. I was asked by a potential client if there was a way for a short sale to happen without them having a deficency and not having to pay tax on the 1099 amount.
Lenders MAY issue a 1099 or a deficiency judgement, but it is NOT GUARANTEED.
I’ve heard that a 1099 & deficiency judgement have been a rare occurence, especially for the big lenders. Also, I’ve heard the chances of receiving a deficiency judgement or 1099 are probably higher from a foreclosure or deed in lieu.
Don’t let the 1099 scare the client. They would be in a lot worse shape if they’re foreclosed on or do a deed in lieu of foreclosure.
From a logic standpoint, if a lender was sending out 1099’s left & right, that would increase foreclosures, since people tend to get freaked out over taxes.
I’m no tax attorney, so I can’t say, but it seems to me that the loss dollars of a property would be more than outweighed by the income dollars generated through a short sale.