1099 - How Does This Leave The Owner Better Off?
In order for my deal to work I need to be able to leave the homeowner in better shape than if he lets the property go to auction in a few weeks. I want to convince him that it is better to sell to me and get his liens wiped out than to let it go to auction and still have the liens attached to him personally. I was intending request the lien holders to "payment in full without pursuit of any deficiency judgment".
Basically, if the property goes to auction the owner will still have a lien against him personally for the amount that was not covered by the sale of the auction, right? The sale at the auction will probably pay the taxes, first lien holder and part of the second lien holder. Thereofore, he will still have liens against him personally for the part of the second lien that did not get paid off and the third lien holder.
In a previous post someone commented : "In addition, you need to explain to the homeowners that the discounted amount (the difference between the mortgage balance and the short sale) may be declared as income on their income tax return by means of a 1099. The homeowners can speak with their accountant for advice. Since the homeowners have been in such duress and probably haven’t made much income, a 1099 may not adversely affect them." I can see how this gets me off the hook by telling them that he should talk with his accountant but as far as I have every seen on a 1099 this is treated as income. i.e. If I get the debt reduced by $100,000 then are they going to have to pay taxes on $100,000 of "income"? Taxes on $100,000 is not a small chunk of change for someone already in financial trouble.
Has anyone ever taked to an accountant to see how this actually works.
Jeff
To be fluent in short sales, or any form of real estate acquisition strategy, you'll need to read and absorb what has been asked and answered historically on this, and other REI boards.
I've discussed this topic at length on this, and other boards. If you use the search features, you'll have most of the information you need to become better acquainted with the short sale process.
Have you paid your tuition? A worthwhile business expense would be to buy an hour of time from an attorney, an accountant, an appraiser, a title searching expert, a real estate broker, a mortgage broker, etc.
For Accounting advice, meet with a CPA over a business lunch at a time of the tax year when they aren't particularly busy... or buy a cheap copy of the IRS tax code.
[ Edited by TheShortSalePro on Date 01/26/2004 ]