Posted by Ed Garcia on December 18, 1999 at 19:30:57:
Oh thanks Bill, now you want to pass the ball to me.
Hey, what do you want from me, this guy has C.P.A . after his name.
He’s talking IRS codes and the whole nine yards.
I’m going to take your suggestion, I’m going to get me a Bud lite.
You got it Dave, Bill and I were thinking along the same lines, right Bill.
Ed
Short sale ? - Posted by Stig
Posted by Stig on December 17, 1999 at 18:20:22:
What is a short sale ?
Re: I didn’t follow my own advice… - Posted by NJDave
Posted by NJDave on December 19, 1999 at 07:23:51:
I try not to respond to any posts if I’m feeling confrontational or adversarial. Yesterday was my version of going postal. Hapeee Holidays.
Re: Short sale ? - Posted by Ed Garcia
Posted by Ed Garcia on December 18, 1999 at 01:28:57:
Stig"
Both answers are good. I just thought I’d add the last time a short sale was some what
of a epidemic in California.
A Short Sale, was a popular method of relief used between 1993 and 1996.
When property values dropped, and many home owners were unable to pay their mortgages.
The lenders realized that the owners were going to walk away from their property due to,
they owed more than the value of the house.
Rather than lose a paying customer, and then have the property sit on the market or sell it
below the loan amount anyway, and pay a commission to a realtor. The lender realized it would
be in their best interest to cut a deal with the existing home owner.
This is what we call a short sale. Mr. Gatten is correct when he says that the buyer would get 1099ed
for the amount dropped from the balance. In the business we call this phantom income.
The reason is, you get taxed on income you never received.
As far as your credit is concerned, the lender would charge the amount off on the Credit Bureau and
the borrower would have a charge off counted against their credit.
Ed Garcia
Re: Short sale ? - Posted by ED Garcia
Posted by ED Garcia on December 18, 1999 at 01:01:59:
Stig"
Both answers are good. I just thought I’d add the last time a short sale was some what
of a epidemic in California.
A Short Sale, was a popular method of relief used between 1993 and 1996.
When property values dropped, and many home owners were unable to pay their mortgages.
The lenders realized that the owners were going to walk away from their property due to,
they owed more than the value of the house.
Rather than lose a paying customer, and then have the property sit on the market or sell it
below the loan amount anyway, and pay a commission to a realtor. The lender realized it would
be in their best interest to cut a deal with the existing home owner.
This is what we call a short sale. Mr. Gatten is correct when he says that the buyer would get 1099ed
for the amount dropped from the balance. In the business we call this phantom income.
The reason is, you get taxed on income you never received.
As far as your credit is concerned, the lender would charge the amount off on the Credit Bureau and
the borrower would have a charge off counted against their credit.
Ed Garcia
Re: Short sale ? - Posted by Bill Gatten
Posted by Bill Gatten on December 17, 1999 at 22:09:08:
A “Short Sale” is an offer and compromise wherein the lender agrees to allow a financially troubled borrower to sell its property for less than is owned on it.
The seller then gets a 1099 for debt-relief (with a resulting whopper of a tax bill) and a ding on his/her credit ('not as bad as letting it go to foreclosure, but almost).
Bill Gatten
Re: Usually, but not always… - Posted by NJDave
Posted by NJDave on December 17, 1999 at 22:48:59:
A mortgagee may agree to accept less than is due even if the mortgagor IS NOT financially troubled. While the financial distress of the mortgagor will certainly influence the mortgagee’s decision, the primary criteria is the as-is, fair market value of the subject real estate, and
While the IRS will view forgiven debt (as reported on 1099) as taxable income, it does not always result in a ‘whopping’ tax bill. The liability will be determined on a case by case basis. In the majority of cases I’ve seen, the liability is inconsequential due to the insolvency of the Seller. A Seller need not be in bankruptcy to be ajudged ‘insolvent’
I facilitate short sales for New Jersey, New York, and Pennsylvania homeowners. My wife and partner, a CPA, handles their post sale tax issues. We also help Investors/Speculators who seek the discounted purchase of foreclosed, but not yet REO, residential property.
Re: Usually, but not always… Oh yeah? Well…let’s ask Ed Garcia - Posted by Bill Gatten
Posted by Bill Gatten on December 18, 1999 at 13:40:27:
Dave,
As have you…I too have been involved in Short-Sales (and alternatives to them) for a very long time as well. California is just coming out of its Short-Sale boom (I’ve converted millions of dollars worth of them to PACTrusts over the past 5-6 years). I agree with all that you have said on a general basis: however, UNLESS one is BK or insolvent (prior to the issuance of the 1099…filing after the fact does doesn’t thwart the IRS’s quest for their LB of flesh), my experience has been that the tax bill was in fact “whopping” or “super bolongus whopping” relative to the offeror’s (mortgagor’s) financial position and ability to pay it at the time (which is typically the reason they petitioned the lender for an offer and compromise in the first place).
And…having been in the banking business (owned one) and mortgage business (owned a couple) and real estate business for a while myself, I’ve yet to see a lender approve a short sale wherein the mortgagor had the ability to pay; had other real estate; and/or good retirement funds or liquid investments of any type. EVER! I think that would be “dumb banking (pardon the technical jargon there).” 'Not saying it hasn’t happened, Dave, just that I’ve never seen it happen ("Dear Mr. Lender, I borrowed $204,000 and still owe you $200,000 and have good income, other real estate and a great retirement fund; but, because of this economy, my danged house payment is really getting to be a pain in the a**: would you mind if I just sold the house and paid you $150,000, and we called it even?).
Any lender I’ve known of, or have been involved with (many hundreds of them), would never approve a short-sale unless it were very obvious that they’d fare worse with a foreclosre and the ensueing ‘Non-perfoming Asset’ aspects of an REO flooring.
What do YOU think Ed? Am I wrong again (I’m begining to get used to concept)?
Bill
Gatten, you are so bad… - Posted by Ed Garcia
Posted by Ed Garcia on December 18, 1999 at 16:45:10:
Gatten, you are so bad.
What scares me, is I agree with you.
Bill, if you don’t mind I like to defuse this by saying that I think you and
Dave only disagree on the IRS issue. And I’m not sure you even disagree
about that.
Bill the way you described short sales, from the lenders stand point
is right on.
What I think Dave was questioning was the part where you say whopping
Tax bill.
Now Bill I agree with you, if the lender cut the deal $30,000. The borrower
Will be 1099 for that $30,000. That’s carved in stone.
What Dave is saying, is they may be 1099ed for the $30,000 but he thinks he
can negotiate that down on a case by case basis.
I think we all know you can negotiate with our Big Uncle. I have no doubt you
have many times Bill.
Bottom line, Your going to take the hit. That’s carved in stone.
Negotiating it down, That’s if, come, maybe.
You win Bill.
(smile)
Ed Garcia
I was surprised, myself - Posted by NJDave
Posted by NJDave on December 18, 1999 at 13:57:45:
I became involved in this transaction when hired by a real estate broker to facilitate a short sale for a Seller (with overpriced listing) who owed more than his home was worth.
Can you imagine my surprise when the mortgagee accepted a short sale offer from a borrower who had never misssed a payment, had $$$$ in the bank, a well paying job, but simply wanted to move and found himself with a mortgage loan that exceeded the home’s FMV?
Incidently, THIS Seller did have an exposure and tax liability with respect to about $40,000 in forgiven debt.
I was surprised, myself - Posted by NJDave
Posted by NJDave on December 18, 1999 at 13:56:55:
I became involved in this transaction when hired by a real estate broker to facilitate a short sale for a Seller (with overpriced listing) who owed more than his home was worth.
Can you imagine my surprise when the mortgagee accepted a short sale offer from a borrower who had never misssed a payment, had $$$$ in the bank, a well paying job, but simply wanted to move and found himself with a mortgage loan that exceeded the home’s FMV?
Incidently, THIS Seller did have an exposure and liability with respect to about $40,000 in forgiven debt.
Re:Exception to the rule, not the rule… - Posted by Ed Garcia
Posted by Ed Garcia on December 18, 1999 at 16:53:32:
Dave:
By your being surprised, I think you are telling us that you agree with us.
What happened in that case was the exception to the rule, not the rule.
Ed Garcia
Re: So we agree? - Posted by NJDave
Posted by NJDave on December 18, 1999 at 17:21:29:
So we all are in agreement with my subject statement, “Usually, but not always…” Thank you.
With respect to the IRS issue on ‘whopping’ tax bills, I respectfully suggest you re-read what I said in my post, and that you consult the year 2000 Master Tax Guide:
Income from the discharge from indebtedness is includable in gross income UNLESS it is excludable under IRS code section 108 (4 types of exclusions are provided 1) debt discharged under bankruptcy, 2) discharge when taxpayer is insolvent outside of bankruptcy, 3) farm indebtedness, and 4) discharge of qualified real property business indebtedness
INSOLVENT refers to an excess of liabilities over the fair market value of assets immediately prior to discharge. Most folks who participate in short sales are technically insolvent, but not in bankruptcy…
We have had success in helping our Clients who participate in short sales reduce or eliminate ‘whopping’ tax bills.
That’s all. No need for a pi__ing contest.
Re: So we agree? - Posted by Bill Gatten
Posted by Bill Gatten on December 18, 1999 at 18:30:59:
Personally after nine beers I’m good for 3.35 yards (assuming of course a tailwind and a target no smaller than a #16 Folger’s coffee can). How bout you Dave? Huh Dave? Come on Dave go for it (…Dave…). I got a hundred bucks on my 7.3 Yar…
Uh oh! Oh dear. 'Deal’s off. I think I just hurt myself.
Take over for me Ed (cough, cough).
Bill