Posted by Nate(DC) on July 04, 2002 at 18:32:17:
If they were insolvent at the time of the short sale, my understanding is that the tax is NOT due.
You should check with an accountant to clarify this point.
NT
Hiding a short sale from seller - Posted by waynepdx
Posted by waynepdx on July 02, 2002 at 16:36:09:
I had a preforeclosure brought to my attention yesterday by a Realtor that I work with.
She said it is a good subject for a short sale.
Is there a way to lock the property up in a p&s agreement subject to the short sale without the seller knowing what the amount of the short sale is.
By talking with the realtor, I believe I can get the property for 60k, rehabb costs of around 20k, fmv is 130k
Re: Hiding a short sale from seller - Posted by Nate(DC)
Posted by Nate(DC) on July 02, 2002 at 20:38:47:
No, the seller would have to sign off on the deal.
After all, they still own the property.
NT
Not true . . . - Posted by JoeKaiser
Posted by JoeKaiser on July 02, 2002 at 23:43:42:
We often include language that states we’re purchasing the seller’s property subject to the existing liens, which we agree to assume, pay off, make monthly payments, or renegotiate, at our option. The “renegotiate” option would cover the short sale proposal.
Whether or not that would work on your short sale attempt is another question.
Joe
Re: Not true . . . - Posted by Dave
Posted by Dave on July 03, 2002 at 05:23:23:
I was once told by the lender, that the borrower must submit a written short sale application to the lender for approval.
Is this the norm or just this lender’s policy? If it makes a difference, the loan was upside down but current. The homeowner was getting a job transfer and wanted to sell.
Re: Not true . . . - Posted by Nate(DC)
Posted by Nate(DC) on July 02, 2002 at 23:52:45:
Agreed…but as you said, only if the seller is willing to let it go subject to whatever’s on it, or you’re willing to give them enough cash to make them willing…my point is that somewhere along the line the seller will need to “sign off” on the perception that they are selling to your for what they consider to be an acceptable price. If you can negotiate with the lienholders, then that’s your benefit.
NT
Re: Not true . . . - Posted by Carmen_FL
Posted by Carmen_FL on July 03, 2002 at 10:29:07:
When doing short sales, I’ve learned that banks will begin by asking for the “normal” stuff (bank statements, forms, etc.), but then will take whatever they can get. I’ve done short sales with nothing more than a phone call and a written contract.
Although I usually put my properties in Trust, and don’t negotiate without at least an authorization to release information and/or power of attorney, I can usually negotiate a short sale with no more paperwork. I tell the bank the sellers are unavailable; that they are unable to come up with any mney; and that the property is vacant. The banks will usually negotiate with whomever they can actually reach on the telephone.
What I would normally do is have the sellers sign the property over to the trust first, then try to negotiate. In this case, the sellers never have to see any paperwork, because the Trustee of the trust can sign for them.
As a real estate agent, however, I have also been able to negotiate “FOR” the seller with the banks as well. The sellers do have to sign the final agreement in these cases, unless they give me Power of Attorney.
In any case, I wouldn’t try to “hide” the short sale. There may be tax consequences for the seller in the long run (unless they can declare themselves insolvent). We’ve done them when either a) the seller didn’t care; just wanted to walk away and had given up in any case; b) the seller signed the property over to us into a trust and said to do whatever it takes; or c) the seller signed the property over to us then disappeared so we couldn’t find them anyway. Most of the time, we’ll tell them we’ll do the best we can, and in any case, it’s no worse than a foreclosure on their record.
Re: Not true . . . - Posted by Mark
Posted by Mark on July 03, 2002 at 19:46:11:
How do you handle the tax consequence with the seller. I have never done a short sale, although i have attemted a couple. The seller being responsible for taxes has killed a couple of attempts. Seems they would rather be foreclosed on than have to pay a bunch of taxes. And could you explain about if they are insolvent they don’t have to pay the tax. Thanks!
Re: Not true . . . - Posted by Brad Crouch
Posted by Brad Crouch on July 07, 2002 at 22:26:28:
Mark,
I have tried twice to respond to your private e-mail, but the reply keeps coming back to me with the message, “unknown user”. What’s up with that?
Brad
Still responsible for taxes - Posted by Brad Crouch
Posted by Brad Crouch on July 03, 2002 at 21:47:31:
Mark,
If the potiential seller’s property goes into foreclosure, he is still responsible for a subsequent tax bill. The lender will make a calculation including the amount of arrearages, the amount of any late fees, legal fees, and costs necessary to put the property into saleable condition, any real estate agent fees that may be generated by the disposition of the property, and any other related lender expenses. The lender then sends a 1099 form to the seller . . . and a copy of that form to the IRS. The IRS may not act immediatly, but they will eventually get around to it. Then the seller will have a whopping tax bill, whether he wants it or not.
Insolvency usually happens around the same time as a bankruptcy, but in order to be effective (resulting in no tax bill), the insolvency status has to be granted by the IRS “before” any bankruptcy is filed.
That is my current understanding of the issue. If anybody knows for sure that this is not correct, their posts will be welcomed.
Hope this helps,
Brad
P.S. Obviously, if you can solve this seller’s problem before he incurrs all this extra expense, it would be better for the both of you. Show him where the pain is, and by comparison your solution may start looking pretty good.
Re: Still responsible for taxes - Posted by Mark
Posted by Mark on July 04, 2002 at 18:10:55:
Thanks Brad. How do you handle the tax issue? The sellers i talked to said no thanks when i told them their taxes owed would be between 10k and 15k next year. They would rather have a foreclosure on their record than pay all that money the next year. The only way i see around it is to not tell them about the tax issue, and i’m not gonna do that.