Got a question on short pay to lenders?

[Hneyr_CA]

I am with a California mortgage brokerage firm, and I am under impression that if a mortgage lender goes with a short pay the homeowner get a 1099 and has to report the short pay amount as income. Please email me your response at
socalif@email.com.
Thank you in advance. Henry_CA

[Jim FL]

hnrey?

I'm not a lawyer, or CPA, so obviously this is a laymans post.
Meaning, verify any info provided before use.
There, disclaimer done.

Now, I think I'm following you, but just in case I'm not bear with me here.
You are saying that if a home owner sellers their house, for less than is owed to the lender, with the lenders approval of course. (a short sale is the term used in this type of forum).
When this happens, and the loan amounted exceeded the sale price, the seller does still owe the lender the difference? or, the lender forgives that debt and issues a 1099 at the end of the year.
This basically means that this 'forgiven debt' becomes income, and taxes would be due on that amount.......right?
Is that where you are going?

Here's the thing, as I understand it, and perhaps John Michael will chime in here, I'm sure he's WAY more well versed in this than I........

Anyway, here's the thing, if the seller who sold the house short, has this 1099 of forgiven debt/income, chances are, this happened because the lender saw there was nothing of value or enough income to go after.
Meaning, the seller is basically insolvent (BROKE).
From what I understand, if the seller is insolvent, which a BK would easily prove, they would not have to pay taxes on this forgiven debt.
Again, this is as I understand it, and not legal, accounting or tax advice, because for that, you really need a pro who is competent and licensed........which I am not.

So, check into that, and I think you'll find out I'm correct.......I would also think this would apply if a house was foreclosed on, and the home sold at auction for well less than the judgement amount, or balance left on the loan.
A deficiency judgment, when forgiven would probably work the same way, as income tax angle wise, unless insolvent.

Anyway, just something for you to look into, and perhaps get you on the right track.

Hope this helps,
Jim FL

[DionEvalueMortgage]

The problem I have with all of this is not enough information. Is this short because of a distressed sale? In which case the lender is already agreed to accept short of loan amount which wouldn't follow with showing income because it would be a charge off.

I need a little more information. Where is the sale coming from. I am not disagreeing with JIM FL, I just don't think this even happens. I am still trying to sort out whether your particular situation is something that would happen.

Post your reply and I will be back to help as much as I can. :confused: