Seller Will Get 1099
I had language on my contract "UPON ACCEPTENCE OF THIS CONTRACT Countrywide WILL BE RECEIVED A REDUCED AMOUNT AS PAYMENT IN FULL FOR THE TOTAL AMOUNT OF THE DEBT, THEREFORE WAIVING THEIR RIGHT TO A DEFICENCY JUDGEMENT"
CW negotiator wanted that removed and said seller will get a 1099.
How do you put that across to the seller?
They are going to 1099 the seller and he will have to claim the difference on the actual note and the payoff as income, where he will be taxed on it. Any debt forgiveness is taxed at the taxpayers current tax rate.
I was told the sellers can file IRS form 982 for that;not sure if it results them not paying the tax on the amount bank lost.
Insolvency of the debtor at the instant the debt is forgiven may result in theexemption from tax on the "income" arising from the forgiven debt to the extent of the insolvency.
If the sellers are truely in financial trouble.. the income may be wholly, substantially or partially exempt from tax.
The problems surface if the seller neglects to report the income... whether an IRS form 1099 is issued, or not.
Either the lender issues a 1099 for the forgiven debt OR the lender seeks a deficiency judgement. It would seem that the contract language you are citing will be overcome by events since the lender intends to issue a 1099.
You still get what you want even if that contract provision is removed.
1) above is not quite correct. When there is a foreclosure sale, the bank gets the house back so there is no debt forgiveness, and no 1099 from the bank.
What is the timing of all this as there is pending legislation to eliminate debt forgiveness.
I do shortsales for a living in Florida so I know the answer to both of your questions.
1. The feds are arranging for a Mortgage forgiveness on the 1099 that the Lenders are going to get at the year of the year for these monies they are shorting.
2. You if you are an attorney or realtor, (this is the way it is in FL) should approach the Lender for the seller. They will provide a short sale package. Let me know how it goes. It takes around 4-6 weeks for the process. Very tricky to find out who is the "real" person that makes the decision. What state are you in.
1) Currently the home owner may get a 1099 from the lender for the difference between what was owed and what the lender recovered. The 1099 may be a taxable event depending on if the home owner can show insolvancy (www.irs.gov search on "foreclosure"
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Also
Also, below is a link where there is some legislation that would forgive any tax debt related to foreclosure, which would include short sells. Remember yesterday we spoke about the 1099?
http://www.nytimes.com/2007/10/05/business/05tax.html?_r=1&n=Top%2fReference%2fTimes%20Topics%2fSubjects%2fF%2fForeclosures&oref=slogin
The House approved a measure yesterday to protect borrowers from getting a surprise tax bill from the Internal Revenue Service after lenders foreclosed on their homes.
The bill, which still must pass in the Senate and be signed by President Bush to become law, would prevent the I.R.S. from taxing any debt forgiven in a foreclosure. The legislation would be retroactive to Jan. 1, sparing many of those who lost their homes to foreclosure this year from a surprise tax bill if their mortgage was canceled.
The measure passed by a vote of 386 to 27.
2) Anyone can represent the home owner in a short sell. I usually get the authorization from the homeowner and tell the homeowner that I will be the sole contact for the lender. I will give the homeowner updates, but I want to be in total control.
The remainder of your question depend on what are your motives. Are you trying to buy the house, are you trying to flip the house, are you a realtor and just want a commission, etc.
Moderators:
Can we set up a survey or vote online where people could consent to "signing" a letter to the Senate supporting this bill.
Every name counts and there are alot represented here.