This deal was a short sale. Put the contract together(Option Contract). For the seller to sign, including release form, hud 1. An he informed me that he would not sign it because he felt he would have to pay the balance of the discounted price back to the bank. I was offering 30,000 on this deal. property needed a great amount of work. He owned 150,000.
An was gonna prove to the bank based on the amount of work needed to be done that my offer was good. He claimed he spoke to 2 attorneys that informed him he would have to pay the deficiency(balance). Question is in a Short Sale when we make an offer to the bank and it is accepted at the discounted amount, is the seller responsible for the remaining deficiency?
They might 1099 him on that amount and the owner might have to show it as a taxable income. Some 2nd mortgages will try and get the owner to take on a signature loan… Which I generally tell them where to stick that. If you want to know about the tax liability on taxes and so forth go to the horses mouth at the IRS (Wait I don’t think the IRS is the mouth end of the horse) Here is the link
They could deffinently 1099 him but all you have to do with the remaining amount due is ask the bank to waive the deficiency judgement. Just ask them to do that in your cover letter. If the bank accepts the short sale with that in there they will not pursue the homeowner for the remaining amount due. But once again the taxes could get him but that should be something he can handle. A lot less than 120,000!
To: whatupdog.
So if the bank approvals the discounted amount, would that stop the propety from going to public auction? But it may still show as a deficiency judgement on his credit? An does that depends on the bank? Even if i request in my cover letter, that they waive the balance due?
As soon as you get the required paperwork and documents to the bank you need to make sure that they have stopped the sale. Speak to someone directly or if a negotiator has been assigned, speak to them directly and get it stopped. Otherwise you are screwed. Never assume anything with the banks. Once they have told you the sale is stopped, call the foreclosing attorney and make sure.
On a first, 9 times out of 10 it will show the mortgage is satisfied short of balance owed on the credit report. A second might show that or a charge off. Just ask. It does depend on the bank.
Ask that they will not pursue a deficiency, but don’t worry about that until you are actually working with a negotiator.
They will always either 1099 or go for a judgment. They can not do both. Ask them what they are doing. If it is a 1099 they need to file a form 982 with the IRS at tax time
Hope this helps.