Short Sale Question - Answer Needed

Foreclosures, Short Sales, Tax Foreclosures
1

I’m working on my first short sale for a house in preforeclosure. My question is as follows:

If I negotiate a short sale with the bank, which the bank accepts, will the bank go back on the owner and make the owner ante up for the difference OR does the bank acceptance of the short sale (along with my agreement to purchase the property) release the current owner from any obligation??

The current owener is ready to allow me to pursue a short sale. He just wants to be sure that, if I can successfully negotiate with the bank, his obligation to the property will be complete, and he won’t owe the difference…

Any other advice would be appreciated…Thanks in advance.

Shawn

2

I was just wondering the same thing and was going to ask and then I saw your post.

I know with vehicles it is exactly like that, if it gets repo’ed and sold at auction the remainder is the original purchasers responsibility. You would think real estate would be the same.

Does anyone know the answer to this? Thanks

3

rooman,

if a bank accepts a short sale offer, then the homeowner is out of it. They would rather get something than go through the expense of the foreclosure process. But the homeowner can recieve any proceeds from the sale.

4

The homeowner will usually get a deficency judgement for the balance of the note, You should try to get the lender to waive the judgement as a condition of the short sale offer being accepted.

5

This is a great question and it depends on what you ask the bank to do.

You can ask for a satisfaction meaning the loan is now paid in full. The lender has given up their rights to go after the homeowner for a deficiency judgment. In most cases you should always try to get a satisfaction. That way the homeowners don’t have to worry about a judgment.

Or you can ask them to release the lien. Meaning the lender now has the right to go after the homeowner for the deficient amount. It doesn’t mean they will, but they have the right to.

Jarad

6

One of two things will happen:

1 They will obtain a deficiency judgement and go after the owner for the balance

OR

2 They will issue a 1099 for a forgiven debt in accordance with IRS regulations.

The 1099 is a better way to go. Since they will have to include the forgiven debt as taxable income on their tax return, they can offset it by claiming a capital loss on their capital gains and losses form. Then it basically becomes a loss.

I also get a committment from the lender to report it to the credit bureau as a satisfied debt and that helps their credit rating.