short sale income tax implications for homeowner
I am facing foreclosure. An investor has expressed interest in buying my property in a short sale. He mentioned that I might get a 1099 and would have to report the difference between the short sale price and the loan amount as income.
Is this true? If that is true there is no advantage for a short sale for me. Foreclusre would be better perhaps. How bad is a forclosure on my credit if I already file BK which was discharged before confirmation? What are some options when I am 28 days from foreclosure?
Foreclosure is probably worst for you then a BK - the reason is do you think any lender in the future will lend you money if you did not pay for your house in the past?
I know that there are certain programs that can save you. One of them would be to find a mortgage broker that uses New Century Mortgage. - Or try to contact them your self. They have a program that stops forclosure if you have good reason.
This means that if you were laid off and got behind, they will help you if you show you got a new job. You have to show the situation is fixed...And you won;t like the interest rate!
Hope this help
Not sure about the 1099 thing
Even if you lose the home to foreclosure you may still be liable for a deficiency judgment... but it depends upon the foreclosure laws and customs of your state and county.
As far as an exposure to a liability for income tax... you'll probably get a 1099S for the difference between what was owed and what was paid. There is an IRS imposed 'test' to see if all or a portion of the "forgiven debt' is taxable.
In the majority of short sale situations, the Seller is not liable to pay income taxes on the forgiven debt. The Seller must be technically "insolvent" for that forgiven debt to be exempt from tax. It is not necessary for the Seller to be 'bankrupt' to be insolvent. Check with
your income tax professional.
Make sure that the "investor" who is structuring the short sale proposal asks, as a condition of selling short, that your mortgage is cancelled and described as "paid as agreed" and the mortgagee agrees not to report any additional derrogatory credit.