Short Sale Tax Advice Needded - Posted by Mike Cerni (IL)

Posted by Mike Cerni (IL) on September 15, 2003 at 20:55:32:

You advice is grately appreciated from me, and others.
Thanks for the short cut to my question.

By bluffing the Bank, you do mean by saying they can declare bankruptcy again, correct? Which cannot be done, if so thanks for clarifing. Absolutely would not want to damage my credibility.

The bank is being tough to work with, they wouldn’t accept my Authorization To Release Loan Infomation. They need a Power Of Attorney, which I’ll have tomorow.
It’s not even at the Loss Mitigation Department yet, the file is still at the local office branch. Should I wait to talk to LMD? Seeing as they probablly don’t have the authority to accept a short?

Yes, I was “told” that it was discharged, they are waiting to get all papers from their attorney so I can look these over.

Yes, they planned on getting back on their feet and keeping their house, and the 2002 Mustang that they also did not include when filing. At this point he’s more worried about the car then the house…make you go…Hmmmmm again?

Thanks again,

Short Sale Tax Advice Needded - Posted by Mike Cerni (IL)

Posted by Mike Cerni (IL) on September 15, 2003 at 20:16:14:

I’ve read through the archives, and I’m still a bit confused about whether or not the owners will get taxed as, normal income, capital gains, or can write off the loss (owner/occupied home for 2 out of last 5 years), On the debt forgiveness of the defaulted loan…
I’m going to consult an CPA/Attorney on this one.

My real question is: The owner in default doesn’t want to be burdened with anymore debt from the house. Seller already declared bankruptcy (Ch. 7) but did not include the house.
How can I as an investor pay off their debt forgiveness tax, without creditors/bank coming after them or (more importantly)me for more monies owed.
I’ve been up front and honest with them about this.
Don’t want to burn any bridges.

Bonus Question: Also can I scare the bank telling them the owner wants to declare bankruptcy a second time?

Thanks in advance

Re: Short Sale Tax Advice - Posted by JT-IN

Posted by JT-IN on September 15, 2003 at 20:36:32:


The answers to what you ask are locate in IRS Pub 544. You can find that at the link provided:

On page 5, column 3, you will find that due to the fact that the Taxpayer is “insolvent or Bankrupt”, there is NO tax liability to debt forgiveness.

You will damage your credibility by bluffing the Bank, especially when it is about something that cannot be done. The best approach is to negotiate with the Lender and ask for a discount on the payoff as a short sale. Depending upon what they say, will then determine which tact you take at that point.

You don;t say whether the Ch 7 Bk has been discharged yet. If by some chance it hasn’t, I think (not certain) that it couldb e amended to include the Lender as a creditor of the Bk… Maybe not too late… Were they planning on keeping the house…? Is that why they did not include that Debt in the Bk to begin with…? This is slightly strange, as usually a person has this all figured out before filing and then beginning to negotiate… Hmmm.