Selling Poinciana One Property at a Time.: Short sales, 1099s, promissory notes and.......DUH!!!

Reserved Parking For "The Lovely Wife"...TLW...ROAR! Blog Boy... I would say the Attorney dropped the ball on this one. He also dropped my allowance when he did that :) TLW...ROAR!

Broker Bryant

So they failed to agree to an interest free note for 15 years which would've cost them about $25 per month, and ruined their credit, only because they chose not to be accountable?

That attorney was (is) and idiot, and I would gladly tell them that.....

I can't wait to see how difficult it will be for that homeowner to clean up her credit....that is just sad to hear.

Yet another thought provoking post on your part.....very cool!

Thanks for the link to Richard's post: he has other blogs that are very helpful and I never would have found him otherwise.  While short sales have increased in my marketplace they don't represent a large %age of listed homes, so I tend to stay away from the "heavy lifting" these listings require.

Bryant- We have an inhouse foreclosure defense attorney who we have our sellers retain once they are served with foreclosure complaints. We have him take care of the foreclosure defense even though he also does short sale negotiations. We have a vested interest of the human kind to our sellers so therefore we are much more successful in actually getting the short sale through on terms in the best interest of our clients. 

Our attorney will also find all the errors in their loans and that is negotiating power to knock off a lot of what they owe. One person here in Florida got his house for free because of truth in lending violations after he was in foreclosure.  

Although I do agree with most of what he wrote, he did not mention that the new debt relief act allows for primary home owners who have lived 2 out of 5 years in the home to NOT be 1099's and ALSO exempt from any IRS reporting of the loss. The other thing is that most of our sellers are insolvent and their tax attorney can prove insolvency and therefor the 1099 becomes almost a non issue in deciding whether to execute a short sale or not if they have not lived in the house for more than 2 years out of 5. 

As far as the interest free notes, most of our sellers just file bankruptcy and then the lender suddenly behaves and gives a fully satisfied mortgage release. We only have been offered this on second note holders who will be wiped out in a bankruptcy.

We have closed a lot of short sales and only one of them said it would not be free and clear but at the closing our title company found a mistake they made and our seller got his fully satisfied mortgage. I don't think attorneys can really access the man power that it takes to really stay on the phone pounding these lenders. If you recall it took Nestor and I, 12 hours that one day to stop the sale on the courthouse steps of one of our sellers. 

Our attorney told us we went way above our call of duty although he was also helping us by talking to the lender's attorney. There are not many attorneys who can stay on the phone all day like that to get the deal done and so I think they accept less in regards to negotiating. I am surprised that there are so many attorneys who settle for these notes and deficiencies in behalf of their clients when with more pushing the lender will more times than not, see the light and do it your way.  Katerina

Good info Katerina, In my area almost all of the short sales are investor owned. So unfortunately the 1099 comes into play most of the time. Maybe I just don't have the patience for short sales. I do have 3 on the market right now but they were all by default......they were listed before they got behind on payments.

There is so much conflicting info on these things. I just prefer to not have to be on the hook for any bad advice. 

As always, your opinion and added incite is appreciated.

Bill, A payment on that note is about $222 a month. It was more than she could afford. 

Matt, I can't blame you. They can be very frustrating.

Hey Hun, No allowance for you!!!

Okay...

Then I am going to go sell your name to the highest bidder :)

Keep it up and I'll sell myself to the highest bidder as well :) 

TLW...ROAR!

I wish I had a Richard in NH...does he have a clone up here ya think???

Broker B, First of all thanks for the link to Richards post.

I too think as Katerina stated the debt relief act lets the seller off the hook for reporting the forgiveness and any taxes owed as a result of the short sale, under certain circumstances, whether they receive a 1099 or not.

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.

BB,

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.

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. 

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

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.

Whoa...that 1099 thing makes sense, but I bet it's seriously overlooked.

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.

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

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

BB,

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.

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.

Rob...

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? :)

TLW...ROAR!

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.  

BB - Interesting and informative.. Nice thing is all the comments generated end up educating. A post has a life of its own!

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.

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.

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!

Broker Bryant,

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

Mike in Tucson

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. 

Steve

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 stress.....life is too short.

I hope this helps.