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Old 08-14-2007, 10:12 PM
 
Location: NW Las Vegas - Lone Mountain
15,756 posts, read 34,866,794 times
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Sat through a very interesting talk about short sales and foreclosures run by Countrywide.

Ran into a very interesting sensitivity. They refuse to discuss when they send in 1099s. It is clear that they do on Short Sales. But other than short sales they flatly refused to comment. Said talk to your CPA...who of course has no control over the issuance of 1099s.

Anybody know any truth?
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Old 08-15-2007, 06:02 AM
 
Location: North Pittsburgh
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1099's are year end statements to the Internal Revenue Service which must be filed by February 28. Anyone receiving more than $600.00 in non-employee compensation is suppose to receive one.
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Old 08-15-2007, 07:12 AM
 
Location: NW Las Vegas - Lone Mountain
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Quote:
Originally Posted by PghREA View Post
1099's are year end statements to the Internal Revenue Service which must be filed by February 28. Anyone receiving more than $600.00 in non-employee compensation is suppose to receive one.

Yes...that is not the mystery...We all know what a 1099 is...

The question is... Do banks issue 1099s on foreclosure or in lieu of surrenders? If so how is the 1099 amount determined?

There is a potential swing of tens of thousands of dollars if you do a short sale rather than going into foreclosure and only the short sale triggers a 1099. .
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Old 08-15-2007, 09:51 AM
 
Location: Gainesville, VA
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I think the difference is that on a short sale the lender is agreeing to forgive part of the debt and that part is then taxable and forces the 1099. On a forclosure they aren't forgiving the debt, they are taking back their property b/c you haven't held up your end of the deal.
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Old 08-15-2007, 11:12 AM
 
Location: Montana
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Quote:
Originally Posted by DavidS827 View Post
I think the difference is that on a short sale the lender is agreeing to forgive part of the debt and that part is then taxable and forces the 1099. On a forclosure they aren't forgiving the debt, they are taking back their property b/c you haven't held up your end of the deal.
Also, just because someone receives a 1099-S doesn't necessarily mean they are in a taxable situation. I actually received one on the sale of my personal residence a few years ago. I think the lenders and settlement agencies are just doing the CYA thing.

Receiving a 1099 (or not receiving a 1099) is not going to change your tax situation. You're going to owe taxes or not regardless of whether the 1099 was issued. I think DavidS is correct, though, about why a taxpayer in a short sale is going to be in a taxable situation vs a taxpayer in a foreclosure.

I've got a class coming up on Short Sales tomorrow so I'll see if they touch on the 1099-S thing. Also, Tish on the Forum handles a lot of short sales, so maybe she can answer your question, olecapt.
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Old 08-15-2007, 02:21 PM
 
Location: Just south of Denver since 1989
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It depends on whether they write off the deficiency or not. Some lenders do as a matter of course, and some will or won't depending on the advice of their accountants.
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Old 08-15-2007, 04:39 PM
 
Location: NW Las Vegas - Lone Mountain
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I just find it interesting that the matter is unclear.

I disagree practically Gretchen. You may theoretically owe taxes but on an unknown amount. And an amount that can only be gotten at by non-definitinive procedures. In a foreclosure or an in lieu of foreclosure their is no market determination of price...so it becomes very difficult to determine exactly what deficiency occurs...a market sale a year or more later has little bearing on the price at the time of the change in ownership.. and for any bank appraisal I will raise you two private appraisals.

I think it an important point. One faced with a short sale should think real hard particularly if the deficiency is large and they have other assets. Far better to walk away and save a huge amount of money. And I am not sure that surrender in lieu of foreclosure is any worse on a credit report than a short sale.
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Old 08-15-2007, 05:05 PM
 
Location: Just south of Denver since 1989
11,465 posts, read 30,989,434 times
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see Realty Times - Real Estate News and Advice
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Old 08-15-2007, 05:36 PM
 
Location: Montana
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Also see http://www.irs.gov/pub/irs-pdf/i1099s.pdf for situations that are reportable real estate transactions.
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Old 08-15-2007, 06:05 PM
 
Location: Gainesville, VA
566 posts, read 2,819,439 times
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Quote:
Originally Posted by olecapt View Post
And I am not sure that surrender in lieu of foreclosure is any worse on a credit report than a short sale.
A short sale in and of itself wont negatively hurt your credit. What will hurt your credit is if you have been late on your mortgage payments, which is often the case, but certainly not the rule in a short sale. Many lenders would rather take the immediate loss on the short sale than go through the costly forclosure process. It is also important to know that lenders don't always file a deficiency judgement against you, so it is possible to walk away from a short sale with no negative affects to your credit. However, it is not possible to go through foreclosure without severely damaging your credit and precluding yourself from buying a home for at least 24 months from the file date.
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