I currently am working on 2 short sales in the DFW area. The clients are extremely concerned about getting a 1099 if there is a loss on the properties. Does anyone know how to avoid getting a 1099 filed after the short sale? Already Homecomings has said that one will be issued to one of our clients. Any advice on how to deal with 1099s would be great!

Found the answer...there is nothing to ensure a 1099 doesn't get filed after a short sale. Apparently the larger institutions such as Countrywide, Wells Fargo, Chase, etc. won't file against the homeowner after the sale. The catch is that the servicing mortgage companies like Homecomings and HSBC and predatory lending institutions will 99.9% of the time file a 1099....What this all means...notify your clients and let them know that regardless of a short sale or foreclosure, a 1099 will be filed if with one of these banks. For those of you who don't know how a 1099 tax is based...

1099 Taxed Amount = Mortgage Balance - Net Sales Price.

The fees and penalties are not included.

I hope this helps!

I don't think I understand. Don't you want to show a loss as a seller of a short sale?

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Ryan Ward, REALTOR® - Keller Williams Realty Consultants. (404) 630-3187
Atlanta Real Estate - My featured area is Alpharetta Real Estate and it is where I call home. Read my Atlanta Real Estate blog.

Alpharettaagent -

Yes, during a short sale you want to show a loss for the seller. The issue of a 1099 doesn't come into play until after the sale.

After the sale of a property, the loss that the bank incurred is taxed to the homeowner...In other words a 1099 is filed showing that there was a positive gain by the seller of X amount, and the banks loss by X amount. There really isn't a way around it being filed unfortunately...it's all up to the bank. I personally think this is a horrible practice by the mortgage companies. For a homeowner to try and do what's right by protecting the banks asset and selling rather than foreclosing, this doesn't give any incentive, and instead causes panic. Either way though, foreclosure or short sale, a 1099 can be filed against the homeowner. The short sale is usually less of an amount though.


I hope that helps!

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Kelly Cope
Morgan Cope & Associates
RE/MAX DFW Associates

Hi Kelly,

I'm interesting in buying one of those properties you have listed as a short sale. If you would get back to me, I'd apprecaite it.

I'm not sure if a buyer credit can be done for taxes, since already owe more than the note, but I am more than willing to work a deal in that regard.

My phone number is on your voice mail--the voice mail I got after you disconnected me. Please call me back.

Ian Forsyth

1099 - sent by lender after the Short Sale Proceeds have been posted to the Lender & the Release of lein has been filed. Best way to explain this to clients is: home listed for 150k - offer for 150k - Payoff to lender is 160k - after closing costs & commissions Net proceeds to Lender is 140k leaving 20k deficiency. ( this is reported as an income by the Lender ) Most people are in a 15% tax bracket - they will pay 15% of 20k = 3,000.00 - not to painfull... Note: if your client filed a BK7 & has been discharged of debt prior to selling - they will not get a 1099 & will not be responsible to pay the unsecured balance.....

Best regards,

Chris Benson
AZ - Realtor

Let's face it we are helping people that are down and out from having their house sold at foreclosure auction. Will a 1099 really hurt, again they are down and out. Just remember disclose disclose disclose. Keep this business clean and get rid of the bad guys. Keep the government out of our business and that means keep your business above board.

Check out IRS publication 908, it mainly relates to BK rules, but there is a section regarding "insolvency." If the homeowner can prove insolvency, then the 1099 becomes mute.