A friend of mine, a good guy in the mortgage business for many years got heavily engaged in "investing' in those stellar years where the money were easily coming and in large quantity. Like many others, he did not stop early enough and ended up owning a few homes, which are all underwater.

After first trying to rent and make payments from rentals, then selling so that he would pay off the mortgage, he decided to go with short sales. We listed the homes, put signs, ran advertisement, got offers. Happy, sent him the  offer, and then for a few days could  not get the answer.

What's wrong? Oh, so fast? He was not ready. Ready for what? Oh, he needed to move funds (lennies left on one account) to a different account, so long story short, no, please take it off the market for a couple of months.

Told him that it would result in less money in 2 months, and that was not a welcome scenario for him. Still no. Moving money was more important. 3 months later he listed the houses again. We put the signs, did all the usual things, called some people, sent a bunch of e-mails, ran several open houses in a row, did mailing...

Got offers. Happy, fased them to him. 2 days later, still do not have it from him, too busy, 3 days later - too busy, then, finally, no, he would not sign.

Why? Oh, he went to an attorney, and attorney told him that with short sale he would get 1099, and with foreclosure he would get a deficiency judgment, and until they are trying to collect, there would be no 1099. He did not mind bad credit, he is very close to retirement, so that was a better scenario for him.

I hate that. You can do whatever you want, but if talking with the attorney is in your plan, why not talk to the attorney before listing the homes? First time I was not inquisitive, but second time I really grilled him whether he was serious about going through the whole short sale process. He said "go ahead".

I tried to reason with him. Sent him the link to Richard Zaretsky's blog, begged him to read. He said "sure" and didn't. Instead he asked a family lawyer (specializing in divorces). I told him that he was risking that the banks would not sue him, but write the debt off and give him 1099, but the amounts would be different from short sale. Did not matter. He made up his mind.

I told him all I thought about it, and it was not nice, hung up and stopped talking to him. We looked bad. Had to call agents and apologize. After some time I softened up, referred a Buyer to him, and it alleviated the tension. Sort of...

So, 4 months later, I called him with a small question, and then asked him how the whole thing ended up with those 4 homes.

Disaster, he said. He already got three 1099. They did not ask him for money, they simply forgave his debt and sent him 1099. So, what he was running from - tax obligation to IRS, came right to him. With only difference in the amount. Our fist contract for a home with a $220K loan was for $185K, and then second time for $159K. His 1099 shows $234K according to him.

He said he did not know it could happen. I tried to remind him that I predicted it and kept telling him, but he did not want to listen. Asked him what he was going to do. He said he was thinking about bankruptcy. 4 months ago he was adamantly against bankruptcy. Asked him why bankruptcy, as I do not believe bankruptcy would discharge Federal tax. He could not answer.

I told him that I do not know the answer, as I am not an attorney. Maybe the family lawyer guy, who advised him on the strategy, would be able to help.

It is tough trying to help friends who do not listen to you. It hurts both sides...

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