Posted by Ed Garcia on March 09, 2000 at 18:45:36:
You are correct in regards to the fact that, it wouldn’t make sense to request
a short sale when the value of the property is more than the loan amount.
Chris, as far as the IRS portion of your question is concerned, that’s an
excellent point. I personally was involved in a discounted loan which would
be similar to a short sale, and I had to pay what they call PHANTOM income.
That means, the difference that you have taken off of your loan, will be counted
against you since you get the credit for that difference as INCOME.
In my case the lender 1099ed me.
Chris, a short sale could be considered if the loan amount was more than “Market
Value”, and the borrower was a good borrower who could show that they were in
distress on their loan.
The concept for the lender is, rather then to foreclose on the existing borrower who
has in the past showed that they have preformed on their loan. To give them a
second chance, buy adjusting the loan to match the market value. The lender would
of had to do that any way if they foreclosed on the property, in order to remarket it.
A lender would never consider a short sale on a lease option, PERIOD.
Banks do not do lease options of foreclosed properties.
The reason is, when a bank forecloses on the property, they have to post a reserve
for that amount, which would count against their capitalization.
Remember, banks are not in the real-estate business. If you ever notice, a bank will
not even fill a vacancy as a rule, they leave that option to the next buyer.
As far as determining if it’s a short sale or not, the bank will comp it, and have their
appraiser do a drive by. In this case a bank has no reason to do a short sale.