Helping homeowner with 1099 debt
Dwan and Sharon have mentioned that they offer help to the homeowner in dealing with the 1099 tax burden they incur as a result of the loan discount from their short sale.
Can you explain what you do to help the homeowner offset or deal with this 1099 debt?
Thanks!
Most lenders, when accepting a short sale, pursue a deficiency judgment for the loss against the homeowner. The cover letters to Loss/Mit in our programs ask for a waiver of the def. judgment. If the bank does not waive its' rights to the DJ, then they can issue a 1099 to the homeowners for "income", being that the homeowner borrowed X but paid back less, thereby earning income. IF this turns out to be the case, we make the homeowner aware of the possibility of the 1099 and tell them to discuss any possible tax implication with their accountant and let us know how much it may be if issued. On the rare instances the homeowner actually cared about this, we found out that the implication may be around $X and then offered to give that amount to the homeowner after the closing. Again, when giving the HO any money, it cannot be sale proceeds; therefore, you must give a bill of sale for appliances, etc. Whether the HO keeps the money for their taxes is not in your hands. Just for the record, a motivated seller, even after knowing of the implications of a DJ or 1099 is still willing to work with you to solve "todays" problems. At least when a HO works with us, he/she has the opportunity to waive the DJ, get some moving $ and get a Paid or Settled status on the credit report, rather than a foreclosure. Thanks for the question.