My question with Short sales is how do you get the bank to call you back?  I've attempted to help a couple of folks out with these things and it was like pulling teeth to get any kind of cooperation in any kind of timely fashion out of the banks.  It's like there is a rule book that they have that says,"drag your feet, drag your feet, change your mind, change your mind, drag your feet....do nothing..."

Bob Mitchell

ValueList Real Estate Services, Inc. 

Hi Bob, personally, I think that you have to take a pro-active stance. After all, you are trying to help them. If you have to threaten to go "over their head," do it. But first have all your ducks in a row. Know that the short sale is their (the bank's) best solution and be able to support that position. Too many "applications" for short sales are from brokers and buyers just taking a shot.

Bill Roberts

Bill,

How sure are you of the 1099 comment? Another agent in the office called his accountant who said that the difference between the mortgage amount and the net proceeds to the bank (in a short sale) is treated as debt forgiveness and therefore taxed as income.

Jay, I am very sure of this, but you MUST have a real tax professional, not just a run-of-the-mill accounant or tax preparer. Yes that has always been the positionof the IRS in the past because they want to maximize tax revenues. But an actual loss cannot be a gain. However, if the loan was a cash out re-fi then all bets are off. What we are talking about is a purchase money loan.

Bill Roberts

Bill, There sure are alot of things to consider in a short sale.  In this market I bet there are going to be alot!  Can you say Niche?  Unfortunately I think it will become one.

Hey Rey,

It's already a niche. Unfortunately there are too many agents out there attempting these things without good information and for all the wrong reasons.

Bill Roberts

Bill,

I can't believe how close we are to being on the same page.  I have to agree with just about everything that you have written.

Before we go on, allow me to address Mr "Steak Dinner" from my 2nd favorite city in the world - Las Vegas (Venice is still #1). Most definitely there are REALTORS® who have already gotten ahead of the 8-Ball and have declared this to be a niche that they are more knowledgeable and professional then anyone else in their market.  I am one of them - check out my blog and you will see what I mean.

Now Bill, I said I have to agree with JUST about everything that you have written.  The key word here is JUST.  Allow mt to explain.

You state that "The IRS then will ignore the 1099" as long as they "submit a letter from the tax professional describing their loss".

You make this sound much too simple and much to clear cut.

Actually, anyone can submit the documentation - granted a good CPA or Attorney may carry some weight, but heck a letter from a Pastor may have the same effect.  Notice I used the word MAY.  It really is next to impossible to figure out just what the IRS will do and to make a blanket statement with the "don't worry about it" message that you are delivering I believe is very misleading and potentially harmful to those who are depending on such advise.

I mentioned that anyone could do it - what is required is to submit the IRS form 982 "Reduction of Tax Attributes Due oi Discharge of Indebtedness (and Section 1082 Basis Adjustment)".  The form comes complete with it's own set of instructions.  It can be downloaded from the IRS website, now that you know the form number.  I always print out a copy and give it to the homeowner when they sign the listing agreement with me.  Remember, never practice tax or legal advise, but suggest they have their tax preparer consider this form for their circumstances.

Other than that, we are good to go my friend.

OK John, I'll grant you that nothing is "cut and dried" with the IRS. Congress passes the laws but the IRS "interprets" tax laws as they see fit. The ultimate authority is the Tax Court, but the IRS doesn't even like to submit to their authority. Their attitude is that each Tax Court ruling only applies to the instant case. That just isn't so. We MUST take a pro-active stance against the IRS. If we let them call the shots, we would all end up broke or in debtor's prison or worse. My position is my position. However, I am adamant about the "correctness" of my position. Stand up to the IRS, but get all your ducks in a row.

I will state again my position, "a loss is not a gain." To truly be a loss however it must be a purchase money loan and NOT a cash out re-fi.

Thanks John for opening up this line of discussion. If anybody relies on my advice they do need to be aware of the difficulties of dealing with the IRS.

On a side note, there have been studies done regarding the accuracy of the information one can expect to get from the IRS. It seems that in a majority of cases, the person at the IRS who answers questions from taxpayers gives the wrong answer.

Bill Roberts

Hi,

 I am dealing with a person that "specializes in short sales" he is an investor, but says he works on my behalf to work out the short sale with my lender.  He mailed me papers to sign ie: real estate contract "contingent on short sale" and a quick claim deed. First of all I did not and will not sign a quick claim deed.  I have a real hard time trusting anyone here in Florida as there are too many cons.  I ask him why he isn't listed with the better business bureau, and he said "would you want everyone to know what you do?"  I thought that was a lame answer.  I think I am going to rethink about whom I deal with. Instead of an "investor" I think I would be better off using a licensed Realtor?  What is your thought on this?  And yes I was told you had to be behind in your payment before the Mortgage company would even talk with them!!

Pam G

Hi Pam,

You are absolutely correct to be suspicious of this "investor." And you should not sign a Quit Claim Deed or any other legal document without professional help.

Before embarking on a short sale you need to really examine why you would want to do this. I suggest that you read as many posts here on ActiveRain as you can on short sales. I've written several and another California Realtor who is a short sale expert has written a bunch of them. His name is John Occhi.

After you are sure of what you want to do contact one of the Florida Realtors you find here on AR. It won't cost you "extra" to deal with them on a short sale since their commission will come from the lender.

I hope this helps.

Bill Roberts

I called the IRS twice today and got the same answer both times. This is what they told me regarding short sales and foreclosures...

The IRS doesn't care how someone lost their house or how they got the debt. The taxable amount is the difference between the Fair Market Value and the debt owed. No fees or anything else is included.

BUT there is no tax implication for non-recourse loans on the federal return. However, there is almost always a tax implication for recourse loans--the only exceptions are bankruptcy and insolvency at the time of the foreclosure."

Of course each client needs to call their own tax accountant but in reality most of them can't afford to put gas in the car let alone pay for an accountant for an hour or two. But from what I learned today it seems like it is probably always better to try and do a short sale rather than foreclosure as long as they have a non-resourse loan(s).

Hi Shari,

Thank you for commenting. What you are reporting is the IRS position on debt forgiveness. That does not mean it is correct. As long as you are asking a "standard" question that allows whoever you are speaking to to read a published statement you will always get the same answer. When you start asking specific questions is when the answers start varying.

The debt forgiveness issue is not resolved by either short sale or foreclosure.

A foreclosure by trust deed is always without recourse. If a lender wishes to obtain a deficiency judgment then they must do a judicial foreclosure and forego the quicker trust deed sale process.

Again I will state my position, a loss is not a gain. If, however, it is a cash out re-fi then the borrower received money directly and if that type of loan is forgiven then they did have a gain which needs to be taxed.

Bill Roberts