Question: If a non-primary residence in NY goes into foreclosure, what determines whether I receive a 1099-C or a deficiency judgment for the bank’s loss?
Answer: -A lot of times it just depends on the lender and the amount that’s deficient. You really don’t have any control when your property forecloses. If they believe you have some assets, they may file a judgment against you.
However, when you negotiate the short sale with the lender, you can actually control what happens to the homeowner. If you ask for a satisfaction which means “paid in full”, the lender gives up their rights to come after the borrower for a deficiency judgment which is really what you should be concerned about. They can still and most likely will issue the 1099-c for the homeowner. However, for most homeowners, form 982 will counteract that 1099. Just talk to your accountant about it.
I am finishing my first short sale, but haven’t encountered anything that shows “paid in full” satisfaction or otherwise. Are we talking about a particular form that the bank is supposed to give me? At what stage of negotiation should I raise this question?
Thanks.
When the lender accepts your offer or “short sale” they will send you an acceptance letter describing certain requirements that you need to follow to close. It will tell you the closing date, how much you need in certified funds, etc. They also specify if this will satisfy the loan or if they have just released the lien, which means they can go after the homeowner for a deficiency judgment.
You want to ask them for a satisfaction. You can do this when you send in all your paperwork on the cover letter. Whether to do it or not is really up to them. But you can ask. If they won’t agree to a satisfaction, it means they are planning to come after the borrower for the loss. You may ask them what it would take to get a satisfaction. Sometimes they only want $2000 – $3000 more. Which is my opinion is worth it to help the homeowner avoid a judgment.