In response to another Realtor's request for assistance with short sales, I wrote the following note. I thought it might be helpful to anyone just starting short sale work.
1. The 1099 issue is a whole study in itself. Generally, if the owner is living in the house and has the homestead exemption, there will not be a 1099. Again, in general, an investor will get a 1099 for the bank's ENTIRE loss, including fees, atornies, etc. There are many, many exceptions and I suggest you get a copy of the current Federal rule, which has been posted by several people on Active Rain. As noted, cash out re-fis will usually trigger a 1099 unless the bank has a policy against it.
2. Setting a short sale price is a study. I personally have never had a bank tell me what they will accept on a short sale until we had a contract signed by buyer and seller and we had a bank appraisal (and BPO) in hand. Then the asset manager has some numbers to work with. Once they give you this bottom line number (by letter) they usually will not budge, so if you go to closing a few dollars short, guess who has to eat it? The listing agent is always in the weakest negotiating position, so if the selling agent or buyer agree to contribute to a shortage, give thanks! During the hey-day we did a lot of Net Price Deals in land sales. We had to work backwards from the Seller's Net to get the total sales price. Short Sales usually turn out to be Net Price Deals!
3. You will need a preliminary HUD to send to the Asset Manager with the contract. Be advised that the numbers on the HUD enter into the bank's pricing decision. Study it carefully before sending it to the bank. Talk to the buyer and/or buyers agent to get them prepared for any price increase that might happen. Make sure that your title company takes this seriously and does not screw you by coming up with different numbers for closing. YOU WILL EAT THE DIFFERENCE!
4. The firmest rule in short selling is that there are no rules. Banks usually dictate terms and conditions....take it or leave it, so be prepared and have your buyer prepared. Buyer can write all sorts of conditions in the ammedment section of the contract....Bank will often not even read it, let alone pay attention to it. Like in sandlot baseball, He who owns the baseball makes the rules.
One of the largest mortgage banks recently circulated a notice to its' many branches to GET SERIOUS about processing Short Sales. I have noticed some spedup in response, for what it's worth.
Note: I like to slowly study the contract and any amendments before taking any action on a short sale. Even more so than on a regular deal. Always talk to the other agent and/or buyer before taking the next step....look for problems at every turn. Ask yourself: "How will this look at closing?". Talk to the asset manager as often as you can & ask for guidance. You will get precious little, but take seriously what you get. By doing this you try to avoid getting backed into a corner where commission give-backs are the only solution.