Charles I definitely agree and I am not even close to being a tax person.
When I do commercial short sales the sellers ask about the 1099 phantom gain and how that will be huge to deal with.I tell them if they can to try and do a loan mod or interest rate reduction first.
Some bought at the height of the market and are pouring money into an over leveraged property. In these cases they don't want to keep pouring money into a property or do a workout on something where even when the market recovers it will be worth less than their mortgage balance.
In other words there is no reason for them to go down with a sinking ship.
In these cases I tell them to consult their tax accountant for legal advice and that I am not a tax person.
I do tell them if they do nothing and it forecloses the 1099 will likely be higher than in the short sale.The reason is markets continue to decline in value and unemployment is still high. Usually once the tenants get wind of a foreclosure the occupancy drops as tenants jump ship to another landlord close by.
So usually by the time the bank forecloses and takes over the complex the value has eroded even further.
I am not a tax expert but it would seem easier to mitigate a small 1099 versus a large one.
Also if it forecloses depending on what type of loan it is they won't be able to get financing for xx numbers of years moving forward.
So as you say many things to consider.
Sellers are always looking for a totally clean break from a bad situation and it doesn't exist.I tell them you have options and have to try to make the least painful and most in your favor as you can.
The bank is trying to get what they want and the seller is trying to get what they want and both have to give to get somewhere.
With taxes some are very risk adverse,some test the waters a little,and others swim with the sharks and hope not to get eaten.
At the end of the day it's a personal choice for everyone how they conduct business and live with the choices they make.
Charles do you have a blog on taxes and planning on BP that you do??