Question: Who is responsible for the difference of the original loan amount if the property is redeemed by the mortgagor, or if the property is sold in a short sale? Who is responsible for the difference? The money lost on the original loan?
Answer: -The individual(s) who signed on the dotted lines and promised to pay the loan back are responsible for the difference. The lender has the option of doing nothing and counts it as a loss, or they can 1099 the homeowner for the difference, or they can file a deficiency judgment against you for the whole amount. If they file a deficiency judgment against you, the only way to get rid of it is to file bankruptcy or pay it off. If they 1099 you for the difference and count it as income, you can fill out a form (982) the IRS has that (in most cases) will counter the 1099. So really all you have to worry about is the deficiency judgment. And a good short sale expert knows how to avoid that so it’s rarely an issue. Most of the time they just 1099 you for the difference.
…So really all you have to worry about is the deficiency judgment. And a good short sale expert knows how to avoid that so it’s rarely an issue.
How???
A good short sale investor will ask for a satisfaction which means the lender gives up their right to go after the homeowner for the deficient amount. If the short sale investor asks them to “release the lien” then the lender reserves the right to go after the borrower for the deficient amount. Many times they don’t even if they have the right to, but I don’t like to take chances.
can they file both the deficiency judgment and 1099, or one or the other only?
in either case what would have the least effect?
No, they either try to collect the debt or write it off, not both. For the homeowner, a deficiency judgment will cause a whole bunch of problems. If you are deficient $40,000, you have to come up with that much money. Most people in this situation don’t have that kind of money so they file bankruptcy as well. If they 1099 you for the difference, assuming you pay 25% for taxes, you will owe $10,000 instead. However, the IRS has a form that (for most people) will eliminate that $10,000 so you don’t owe a dime. So a 1099 would have lesser consequences.
will this scenario work on an investment property, where you can use that IRS 982 form ?
I would talk to your accountant.
Great tips, thanks!
1/30/10 – I just signed “Notice of Default Purchase Agreement”. I was assured that I would not have any out of pocket. Yet they have x out Seller to pay for a natural hazard zone, smoke detector, cost of compliance, escrow, owner’s title, county transfer tax,difference between the original balance and negotiated balance. I was told that this was just to negotiate with my lender. The name of buyer is Jonathan Mehdi,, World Investment Network and Lexington Realty.
What happens if I vacate or quitclaim my interest? My husband passed away and my income was cut in half. Also, I owe 350,000 and my house is worth $150,000.
Should I short sale or quit claim. Houses is not selling in the area. What would be best/
If I did a short sale in 1999, and two years later the lender sends me to collections for the difference without notifying me how do I fight this, also the lender is now out of business. I have hired credit agents to help me get this resolved, they can’t even figure this out. I’m in collections for 50k!