Hello everyone. I have 2 questions Re: deficient balances.
Is it a must to receive a 1099 for the deficient balance upon a short sale, or if there is a way around it.
Re: a Deed in Lieu, does the bank go back to the home owner for any deficient balance after they do what they do?
Thanks in advance
Scott Doppke :bobble
I don’t know of anyway around the 1099 since this is an IRS rule.
The other question is related to your specific state. You might want to “Google” that issue and see what your state’s laws are.
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.
Thanks for the quick reply.
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.
The “income” from a short sale or other forgiveness of debt may not be taxable if the taxpayer was insolvent at the time of the forgiveness.
If the property was a rental property couldn’t you claim the loss helping offset the 1099 on earned income?
There is an article on this website that mentioned that.
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.