Short Sale - Deficiency Judgements vs. 1099
When doing a short sale, what would be better for the distressed seller to do (better for THEIR financial future, not the investors) -- get a 1099 from the lender now, or deal with the deficiency later?
It always depends on their situation, but here might be a common example:
John buys new home from builder in 2004 for $180k, 100% financing. Loses his job today, gets several months behind on payments. Tries to sell the house, but market value on this house is now $150k. Joe Investor comes in and offers to take care of his problem, and negotiates with the lender to buy for $130k.
Now, I have heard from various gurus say that the lender will waive the 1099 or the deficiency judgement, but not both -- is that correct? If so, wouldn't it be better for John to just owe the IRS for the income tax on that $50k vs. have the lender waiting in the wings to attach a judgement, just when John is trying to get back on his feet?