BiggerPockets

They will not get a 1099 for the deficiency.

Hi Doug,

From what I understand, and I am by NO MEANS an expert, the challenge isn't necessarily getting the seller to say yes to a short sale, but is making sure they're serious about it as Ali mentioned. Even if they agree to a short sale, it doesn't mean that they will be keen on getting together the seemingly invasive records that will be required as part of the short sale package.

I think a lot of the time they are just as embarrassed by the prospect of a short as they are of a foreclosure. But that's why we're not in the real estate business - we're in the solutions business, and need to understand our clients needs before we can prescribe the right solution.

Hrmm, that was longer than I planned. Doug, what part of CA are you in? I'm in Orange County. I'm just getting started in short sales too - we should chat sometime.

Liam

My experience has been that once the homeowner accepts a short sale bid the PA is then sent to the bank for acceptance. The banks will accept but then go after the homeowner for the difference between what is owed and what the sale price is. The homeowner then figures they are better off just going through foreclosure-once the bank takes the house they are able to walk away with no threat of being sued for the difference. Has happened 3 times to me.

Lately I did extensive reading (here on BP) about the whole deficency issue.It seems California, where I am located, is a state that doesn't allow for the mortgage companies to go after the home owners that go through foreclosure or short sales. That being said, I am still going to seek attorneys quidance here. As the saying goes "what the large print giveth the small print taketh away"! Since my purpose it to a large degree helping people I don't want to give them bad information.

Great advice Justin. Everyone could learn alot from what Justin said!

You really need to know and understand the laws and regulations in the areas you conduct business.

Some people have still gotten a 1099 after a foreclosure.
Also, if they get a 1099, their tax preparer can file a 982 form & write off their loss as well. (At least, this is how I have seen it done) I'm not a tax professional, just stating what I have seen happen.

"Why would people facing foreclosure say No to a short sale?"

1) If they are REI knowledgeable, they'll know you're talking pre-foreclosure, not a true short sale. Maybe that leaves a bad impression, maybe it doesn't. It may also send a signal that you're lacking in other areas...and might end up with the wrong deal.

2) If they bought the house to live in, and not to invest in, they might not see the 'advantages' you're speaking of; there may be other reasons, such as a medical/family issue. Chances are, if they are in this category, they also do not know the difference between a shortsale and a pre-foreclosure...

3) No 1099 for the deficiency. This is where knowing the difference between the two is CRITICAL in my opinion. Can you imagine arranging a deal for someone in the beginning, telling them this, then, the deal closes, and they get it anyway? Get your reputation sunk by something like this, and you may have to find elsewhere to do your business. Remember, as we get better, we'll deal more often with OTHER REI's...and word gets around.

4) Exposure: If you deal with a pro, and they detect you don't know the difference, don't expect them to structure the deal to accommodate your lack of knowledge. Its not a rip off, its about each of us being responsible and knowing what our goals are. Thats not the job of the woman across the table from you.

Those were my two cents.