Several years ago i had property go back to the lender..my debt was 150K…
the back accepted an offer from an investor for 125K …the following
January i rec’d a form 1099 from the bank showing a “charge off” of 25K ..which is treated as ordinary income…i was’nt expecting this….
Now fast forward to now.. i have a deal working to get a short sale accepted to save this seller from foreclosure and give him a little moving cash… Seller thinks all is well and i’m a great guy till next Jan. when he gets a 1099-c for income he’s never seen..
QUESTION?…do i tell him in writing up front that there could be tax liabilities and risk the chance of losing the deal?
Suggestions? comments?
Answer:
Absolutely without question you tell them they will be receiving a 1099 for the amount that was forgiven. The tax liability would be worse if it wasn’t for you, right? They are either going to 1099 them or file a judgment ANYWAY… Regardless of what you do! You are actually bettering their situation.
This is a common concern for most investors, however there is a solution. There is a form the IRS puts out that counter acts a 1099. You can find it on www.irs.gov. It is form 982. Yes, you should always disclose to the seller the risks involved, but your main concern is a deficiency judgment now.
You need to read the Short Sale Secrets ebook that I have, it would help you tons…
I want this to be a commentary on all the people who read this blog who look for personal gain on the misfortunes of those, who for no fault of their own, find themselves in financial bind. I would also like an answer please.
We had to sell our home. We were short by 11 thousand on the 2nd loan. The first was fully paid. The bill collector for the 2nd lender told me that the deficiency was “charged off” and that the the interest has now stopped accruing.The bill collector wants us to make arrangements to pay the balance. Morally I feel this is the right thing to do. I believe in meeting my obligations.
My question, are we legally obligated to now pay off this 11 thousand plus the interest?
Since the lender charged it off, what happens if we ignore payments?
This is in California.
(The 1st lender refused to negotiate reducing or eliminating a 15 thousand pre-payment penalty. We were 2 years into a 3 year pre-payment penalty clause. The 2nd lender is a division of the first lender. So we actually paid more then we owed on the first and ended short by 11 thousand on the 2nd. If they would have helped with the pre-payment penalty, we would not be in the situation were in. Money is very tight for us now)
Can you help with this question?
edit: This most likely has been posted to my credit report.If I make small payments which the bill collector has agreed to, it will take me 16 years to pay it off. I’m now 61 years. If this continues to go unpaid by making these small payments, will this charge off appear on my credit report until paid off? The collector has agreed to take 65% of the total unpaid debt, but under the present circumstances,I can’t pay it in full. I am very much worried about my credit in my retirement years.
This whole thing started when I was laid off at age of 60. Reason given:reduction in staff. No recourse. California is a fire at will state. 41 year career and never out of work until now. A Viet Nam vet also. This should not be happening to old folks. As a side note my industry is now shipping the work out to India. Sorry for the rant.
Marsh,
If you were in foreclosure (received a notice of default from your lender) the prepayment penalty should have been waived. They cannot charge this prepay when your home was in foreclosure process. Also, I don’t know for sure but I thought a charge off means it shows as a loss.
First, don’t insult the blog readers you need advice from. You are finding out that life sucks at 61. You had a steady job for 41 years. You are lucky.
Personal gain from others misfortunes? I am a doctor, and what the heck do you think we do, if you want to look at it that way.
I don’t think anyone here “looks” for personal gain because of the misfortunes of others.
We are trained to “help” those who might need it. And just like you and anyone else, we don’t work for free. We get paid for our time and expertise.
At this point Marsh, you just need to settle this debt. Yes it will affect your credit, but not for very long.