short sale 1099 negotiation

[Tom_Mi]

All,
Today the bank said they'd take a short sale offer of 220k on 340k debt if I pay a 20k promisorry note.

That's so much less than the 120k deficiency I'm tempted to take it.

My question is the 1099 issue...I'd like to come back and ask them NOT to send one.

So the question is: If the bank doesn't issue a 1099 to me, does that deny them a writeoff of their own? Does it cost them tax advantages for me to request no 1099?

[fltoo]

Not only would I ask the bank not to issue a 1099a, but I would negotiate and counter back with a lower amount than 20,000.

Doesn't hurt to try.

Is this owner occupied or a rental? and Are you filing BK or trying to settle your debts?

[Tom_Mi]

First, thanks for responding.

it's 2 neighboring rentals (4unit apt buildings) that I bought at 170.. hence the 340 debt.

I have a cash offer of 115 per bldg that the bank's been sitting on for a while.... and I've spent months preparing Bankruptcy options assuming they'll come after me for about 120k.

Today I'm emailing them back verifying it's not 20k PER building, but Im also going to ask about the 1099.

My real question is about my leverage with the 1099....does tax law prevent them from the writoff UNLESS they issue me one?

[HHM]

So the question is: If the bank doesn't issue a 1099 to me, does that deny them a writeoff of their own? Does it cost them tax advantages for me to request no 1099?

Yes.

You won't get very far trying to negotiate away the 1099, after all, it is an IRS requirement that they issue one whenever debt is foregiven. Granted, some banks won't bother too iseue a 1099, but unless you get the 1099, the debt is still technical active and collectable.

However, you can try, but I wouldn't hold out any hope.

Another option would be to approach the buyer and have them bump up their offer by 10K to split the difference.

[Tom_Mi]

Thanks HHM. I just asked them what the 1099 amount would be.

I assume it's the 120k deficiency minus the 20k promissory, but I'd love to be wrong.

No chance I can argue to tie the 1099 to appraised value and not the actual deficiency?

[HHM]

Thanks HHM. I just asked them what the 1099 amount would be.

I assume it's the 120k deficiency minus the 20k promissory, but I'd love to be wrong.

No chance I can argue to tie the 1099 to appraised value and not the actual deficiency?

Probably not, after all, the whole point of the 1099 is to document that you Owe $X amount, but are only paying back $Y. You are contractually obligated for the full amount regardless of the current value of the underlying property.

You are probably insolvent by IRS standards...and if BK is in your future, the tax implications are moot.