Short sales, 1099s, promissory notes and.......DUH!!!

Real Estate Broker/Owner with Tutas Towne Realty, Inc and Garden Views Realty, LLC BK607690

A failed short saleHi folks. Richard Zaretsky wrote a great post yesterday titled "Back to Basics...a Review on Short Sales". If you haven't read it please take a few minutes to do so. It is a very good perspective on Short Sales from an Attorney.

Richard's post brought up two very good points for me. Both were light bulb moments.

The first was the 1099 "thingie". Whether you receive a 1099, or not, has no bearing on whether you have income to declare. Well...duh!!! Why would it. All a 1099 does is reports the income to the IRS for you. If it's not done for is still YOUR obligation to report it. A perfect example of this is the way Title Companies, at least in Florida, handle our commissions. They are not required to 1099 me for commissions paid....BUT...I still have to claim the income. So wouldn't the Seller have the same obligation? They certainly may not have to pay any taxes BUT they would still have to claim the income.

The second light bulb moment was the promissory note. Some lenders will require the Seller to sign a promissory note for all of the "short" or part of it. So my thought was, why not sign it if the alternative is a foreclosure? What difference does it make? You would go from having a foreclosure on your credit to having a "no pay" promissory note.

I had a Seller, several months ago, whose property was foreclosed on. She owed $270,000 on a property worth about $139,000. We attempted to get a short sale acceptance at $130,000. The lender agreed assuming the Seller would sign a note for $140,000. I was able to negotiate the note down to $40,000. The Seller's attorney advised her not to sign it and to just let the property go into foreclosure, which it did. By the way, the note would have been interest free and for 15 years.

Was this a mistake? After reading Richard's post I believe it was.

My plan in the future is to just send these Sellers over to Richard. I'll let him handle the heavy lifting. That way I can concentrate on listing and selling. All this other stuff is just more than I need to know. What say you?

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Bryant Tutas
Tutas Towne Realty, Inc
Licensed Florida Real Estate Broker
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Lisa Hill
Florida Property Experts - Daytona Beach, FL
Daytona Beach Real Estate
I think I need to check out Richard's posts. And I just read a few of the comments regarding the "Debt Relief Act". That does shed an entirely different light on the subject.
May 05, 2008 11:17 AM #11
Lynda Eisenmann
Preferred Home Brokers - Brea, CA
Broker-Owner,CRS,CDPE,GRI,SRES, Brea,CA, Orange Co


Richard's post was great, probably one of the best on the issue.

As for your question of..."After reading Richard's post I believe it was"... I would agree with you. At least from the perspective of my state in CA where we do not have deficiency judgements on our purchase money loans on residential properties. Therefore, no reason for a borrower to re-commit financially.

May 05, 2008 11:24 AM #12
Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate
I'm working with a short sale expert in Ann Arbor, he handles it completely once the offer is in. It has been a total relief to me. The negotiating with the banks is the hardest part. Haven't read Richard but will go glean his advice. 
May 05, 2008 11:28 AM #13
Petra Norris
Lakeland Real Estate Group, Inc. - Lakeland, FL
Realtor, Lakeland FL Homes for Sale
Bryant - all posts "your's and Richard's" are very informative when it comes to investment properties. Katerina's great comment is mostly relevant to the homeowner. More importantly, investors and/or homeowners facing foreclosure should seek the advice of an attorney, specializing in Real Estate and an accountant as well as seeking Realtors(R) who are specializing in short sales and foreclosures.  I'd like to suggest also that Realtors(r) not experienced in these types of transactions to seek the help of experienced Realtors(r) - just my 2cents
May 05, 2008 11:53 AM #14
Lori Young
Young Realty Group, Inc. - Naples, FL

I have found that the lenders call me at lunch and after 5pm.  What attorney is working then?  If the borrower has given an honest financial statement which shows the inability to repay the difference, the lenders are more understanding on debt relief.  Only WAMU has really taken one of my borrowers through the hoops.  Bank United, Wells Fargo, Homeq, EMC and a few others have not even mentioned a "buyout" or had the borrower sign a deficiency "unsecured note"  Chase asked one borrower to pay out several thousand dollars but we got that way down.

I think if the agent knows how to speak with the lender, this is something you can do when you are working the package.  Try working the package yourself.  These short sale companies have to charge someone for their service and it is not coming out of my commission.  Besides, you can learn more about short sales here on RAIN then in any class. 

Thanks for sharing.

May 05, 2008 11:59 AM #15
Jolynne Photography, Creative Wedding Photography, Family Portraits, Bar Mitzvahs
Jolynne Photography - Hemet, CA
Bat Mitzvahs, Senior Pictures, Event Photography
Whoa...that 1099 thing makes sense, but I bet it's seriously overlooked.
May 05, 2008 02:14 PM #16
Jennifer Kirby
Kirby Fine Homes - Minneapolis, MN
The Luxury Agent
In this market, everyone needs to look at all avenues before making a final decision. Many people don't realize you can negotiate with a bank on so many levels.
May 05, 2008 03:35 PM #17
Alan 'AJ' Nisen California Contra Costa Mortgage Officer
A Large Bank in America - Lafayette, CA
BB, Great points.  But best of all, you turned me on to Richard.  That was some of the best reading on short sales I have ever read. THANKS! AJ
May 05, 2008 06:32 PM #18
Jesse & Kathy Clifton
Jesse Clifton & Associates, REALTORS® - Fairbanks, AK

Bertha, I think I'm with you. I do believe I would have needed a really compelling reason not to sign the promissory note.  I don't remember who said it but in all likelihood it could have been renegotiated down the road.  Then again, if you don't have the money $222 a month might as well be $22,000 a month.  There are no winners in these situations, that's for sure.  Betty Jesse

May 05, 2008 08:35 PM #19
Neal Bloom
Brokered by eXp Realty LLC - Weston, FL
Realtor CRS-Weston FL Real Estate


Any clients that I have that were successful with selling short...I always tell them that they may or may not receive the 1099 but they should consult an attorney and an accountant. The income is still reported and although they aren't getting it they are still being releived of it by the bank. I guess the banks feel that they shouldn't have to pay the tax for the seller. It could be confusing as well.

May 06, 2008 12:05 AM #20
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F
We as Realtors can't legally give them legal or tax advice.  It is good to know someone to refer them too.  I won't be surprised if a lot of litigation does not occur because of all these short sales.
May 06, 2008 01:46 AM #21
"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL


I've been thinking along those lines. In the our efforts to help I can see where we'd be opening ourselves up to litigation.

We're supposed to be telling folks to seek the advice of a 'good' Attorney. When we step in and do the Attorney's job we are crossing the line.

I think many of the Salespeople who are handling short sales need to re-evaluate their position at this point.

But hey...What do I really know? :)


May 06, 2008 02:07 AM #22
Marc Grossman
Marc It Sold! - Longwood, FL
GRI, Greater Orlando Real Estate Broker
BB & TLW,  My original thought was that I can't believe that the attorney advised the client not to take the deal.  But then I read the thread and you stated that she couldn't afford it.  That's sad because that was a great deal that you got her.  
May 06, 2008 02:13 AM #23
Gary L. Waters Broker Associate, Bucci Realty
Bucci Realty, Inc. - Melbourne, FL
Fifteen Years Experience in Brevard County
BB - Interesting and informative.. Nice thing is all the comments generated end up educating. A post has a life of its own!
May 06, 2008 02:41 AM #24
Allison Stewart
St.Cloud Homes - Saint Cloud, FL
St. Cloud Fl Realtor, Osceola County Real Estate 407-616-9904

The foreclosure option would of course ruin her credit- but then again a judgement of any kind would remain on her credit report anyway for 7 years- so it amounts to basically the same thing.  Too often, people do not realize paying a judgement does not release the judgement from your credit report.

As for the 40K note, she would have had to carry that fpayment for 15 uears and as you said she could not afford to do that.   The foreclosure should have wiped out the debt and she will carry that on her credit report for only 10 years.  Basically amounting to a fresh start.

May 06, 2008 08:14 AM #25
Gary White~Grand Rapids Home Selling Pro Call: 616-821-9375
Flexit Realty "Flexible Home Selling Solutions" - Grand Rapids, MI
Real Estate Services You can Trust!
Hi Bryant, many of these issues that people face now are life changing events.  Letting someone like Richard carry the load on issues that have such legal ramifications is going to give you more time doing what you do.  Nice post Bryant.
May 06, 2008 11:05 AM #26
Katrina Madewell
Charles Rutenberg Rlty- More than 5,000 agents(813) 777-1196 - Tampa, FL
Tampa FL Homes for sale | Tampa Bay - (813) 777-1196
MFR MLS also sent out an update addressing these in our local MLS and the Do's and Don't... boy do I STILL see a ton of the DON'T!
May 06, 2008 03:03 PM #27
Mike Jones
SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) - Tucson, AZ
Mike Jones NMLS 223495

Broker Bryant,

I haven't heard a single REA in Arizona talk about the 1099.  Thanks for posting.

Mike in Tucson

May 07, 2008 04:27 PM #28

Hi...I have a house I currently don't live in.  I have two loans on the property through Chase Bank.  First loan is about 123K and the second loan is about 25K. Total is about 148K.

After pleanty of open houses, a dedicated website and craiglist links I've received a few offers from 96K-120K.

The 120K was the highest and with minimal concessions.  Next door neighbor is still for sale at 118K and comps in the area range around 112K.  

My question is the short sale is approved "if" I sign a promisorry note for 138.00 a month for 72 months (10K).  Obviously, I should probably sign it and put this nightmare behind me.  What bothers me is it took Chase bank 4 weeks (from a loser short sale person who kept asking for the same documnets, thus having some people retractibg thier bid because it was taking so long) to make a decision on the short sale and than on the 13th hour they bring up this promisorry note. 

After talking to my real-estate agent they wanted to charge 20K but did the minimum 10K is there any minimum? Should I negotiate this? This house is in Michigan.

When the ARM adjusted in December I've been paying 2K a month. So I've spent 10K already. 

Trying to have integrity about this and not being greedy. 

Thanks for anyones input on this. 


May 14, 2008 01:45 PM #29
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Hi Steve, You are fortunate to have found a buyer. I've never heard of there being a minimum for a promissory note, however, that could be a Chase thing. Has the 2nd lien holder agreed to release their lien as well? Personally I think you should seek legal advice before signing off on anything.

Signing that note is always a hard decision. But bottom line is they are forgiving quite a bit of your debt to them that you agreed to borrow and pay back. As frustrating as the lenders can be it's not their fault you are now asking for a short sale. Is it?

So seek legal advice first. Then just make a decision on whether or not you can afford that payment on the note. If you can go for it. You can always negotiate it down later if it becomes difficult to pay. I would think the main thing right now is to avoid the foreclosure and get that $2,000 monkey off your back. And get rid of the is too short.

I hope this helps.


May 15, 2008 12:45 AM #30
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