I had a problem addressing the 1099 issue ...
with a short sale I recently tried. I have read Dwan and Sharon's course on short sales, and they explained that a bank can issue the homeowner a 1099 for "gains" from the result of the short sale. They said that normally the seller shouldn't worry about it, because a bank could issue it to them anyway even after taking it back and reselling it for a loss as an REO.
I tried to explain this point to a lady facing foreclosure - kind of as a side note, and I think it scared her away from allowing me to attempt a short sale. After I talked to her and set up a meeting, she talked to an attorney (a bankruptcy attny), who I think told her not to mess with me - because her husband called and cancelled our meeting. I tried to talk my way back into it, but I let it go b/c they were apparantly declaring bankruptcy. As I found out today, they ended up just letting the house go to the courthouse - where it was bought back by the bank.
My question for any of you with experience in short sales - how do you address this issue and how do you address any of those tricky issues that might scare off pre-foreclosure sellers??
Thanks for any help.
Dear Clemson,
Lets see they lost their home,have a BK
on the credit report and will get the 1099 anyway! Sharp Attorney!!!
In the majority of instances, the 1099 is a non-issue. Especially for the Homeowners who are financially insolvent, or formally "bankrupt."
You should practice your presentation before you meet with a potential short sale candidate. Be sure of your facts. Have reference materials handy (IRS Tax Code) Don't EVER offer tax or legal advice, but you can print out the applicable tax code and leave it as a reference (if the subject comes up).
Obviously, the potential short sale candidate didn't think you knew your stuff.... while the lawyer (bankruptcy salesman) had a more rehearsed, and polished pitch.
Thanks for the responses. I think you're right about not being well enough versed in the tax laws that apply to this situation. Hopefully this experience will help me next time,so I'll be more comfortable in talking about the situation with the homeowner.
In respect to the attorney - I don't know for sure what went on in this situation, but it seems like there are a fair share of attorney's in the bankruptcy specialty who don't even try to look out for the best interest of their clients. I can at least feel good about myself because I believe my solution to their foreclosure problem can help them in some way. Many attorneys just take their clients money and help them to dig themselves into a bigger hole![ Edited by ClemsonInvestor on Date 04/01/2003 ]
Quote:
On 2003-04-01 18:08, sappster wrote:
Dear Clemson,
Lets see they lost their home,have a BK
on the credit report and will get the 1099 anyway! Sharp Attorney!!!
Sappster:
Please don't bad mouth the attorney until you have your analysis correct. If a person files bankruptcy, regardless if the bank issues them a 1099 for receipt of income, it will not be taxable because of the "insolvency exclusion" under Section 108 of the Internal Revenue Code.
In addition, I think the post indicated they did not file bankruptcy, but let the house be foreclosed on. While that may affect their credit (depending on if it shows up on their credit report or not), I doubt if they really cared about that.
When dealing with people in foreclosure, you need to try and put yourself in the homeowners place. They generally do not think rationally. I have found the best way to deal with people that are in foreclosure is to have a joint meeting with them and their attorney and make some suggestions. If have to make the people feel comfortable and the attorney comfortable before they will do the deal with you. It is an issue of trust. I have found if you can offer more than one possible solution to their problem, they will pick a solution (which will make you a fair profit no matter which solution they choose) and rarely cancel the deal because they have some "ownership" in the decision.
If working the short-sale market with people that are in bankruptcy, you should get to know the more reputable bankruptcy attorneys in town. If they know you, you might be able to refer the homeowner to the attorney and work out a "win-win" deal. If the homeowner has a BK attorney, undoubtedly the BK attorney has heard of the BK attorney you have a reputation with. Attorneys often call their legal collegues to check a person out. Wouldn't you want a reputable BK attorney vouching for your integrity on short-sale deals that work out a "win-win" deal?
(By the way, often these attorneys will see the money you are making and may be willing to put up capital for future deals you find. Attorneys generally have lots of $$$, but very little time).
Hope that helps,
Taxjunkie
TaxJunkie,
Thanks a lot for your help. I will use your advice and continue to become more comfortable with the tax code and with the bankruptcy scene/attorneys in general.
Like any other business relationship, it sounds like building rapport, being honest, and being a good person is the best formula for success in buying preforeclosures.
Thanks again, and I look forward to reading your replies in the future. [ Edited by ClemsonInvestor on Date 04/02/2003 ]