Short Sale Legal Issues Affecting Real Estate Agents Part #5

Short Sale Legal Issues Affecting Real Estate Agents Part #5

The previous posts in this Short Sale Legal Issues Affecting Real Estate Agents series can be accessed here: Part 1, Part 2, Part 3, Part 4.  

MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY  

This series of posts is meant to assist real estate agents in recognizing: 

1. Legal & Tax Issues their clients are exposed to through a short sale.


2. The legal liabilities agents may expose themselves to when representing short sale sellers. 

Disclaimer:  This series is not intended to advocate the hiring of attorneys and CPA's for short sales, but rather that agents should fully research and be aware of the potential legal liabilities and tax issues for themselves and their clients.
 

A decent portion of the feedback I've been getting on this series is from agents stating they have no need for attorneys or CPA's.  That may be true, but it also may be a disservice to their short sale seller clients.  There can be so many convoluted legal & tax issues involved in a short sale and they're often overlooked by agents. 

Not that attorneys or CPA's are perfect either.  I recently referred a short sale seller to an attorney I prefer, after a very disappointing conversation with the attorney they had found on their own.  The attorney was the infamous, "jack of all trades, master of none" type that was just looking for a pay day, but barely knew the basics of short sales.  So, be careful who you refer your clients to!

Short Sale Issues Agents & Sellers May NOT Even be Aware of

These legal & tax issues may not come up on every short sale, but if they do come up & are missed, the ramifications could lead to a lawsuit against an agent.  Most of these are serious legal or tax issues.  An agent should proceed with extreme caution if they choose to address these on their own or ignore them.

• What figure should go on line 7 of a 1099-C and can it be negotiated?


• How much in taxes will a seller owe on a potential 1099?


• Would it be better to rent the property, even at a loss, rather than pay the 1099 taxable amount?


• When is it better to sign a Promissory Note as opposed to accepting a possible deficiency judgment or 1099?


• Was there a Truth-in-Lending violation by the lender that can be leverage in negotiations?


• What happens if a seller gets both a 1099 and a deficiency judgment?


• When should a seller consider bankruptcy?  What type?


• What actions can a seller take now to protect their assets if they're later forced into bankruptcy by a deficiency judgment?


• How can a seller structure a short sale to make sure they qualify for a Chapter 7 versus being forced into a Chapter 13?


• What legal issues does a seller expose themselves to when having someone buy their short sale to then rent, lease-option, or contract to sell back to them?


• Should a seller disclose a non-arms length short sale to their lender to avoid a future fraud lawsuit?


• When can IRS Form 982 be used and how?


• Will there be a capital gain issue in addition to a 1099 or deficiency judgment?


• If the seller moves out of the property, how to keep lender from considering it abandoned & accelerating the foreclosure process?


• What happens if a 2^nd lien holder discharges their Mortgage security instrument, but enforces their Promissory Note and gets a judgment against the seller before the short sale closes?


• Will a short sale lead a seller's lender to investigate their mortgage application and are there issues there that could lead to charges of fraud against the seller?


• Will there be a state tax on any forgiven debt, even if seller qualifies for the federal exemption?


• If the property is a condo, how should any past due association fees be handled?

Stay tuned for the last post in this series...

NOTE: if you'd like a copy of my whitepaper Short Sale Legal Issues Affecting Real Estate Agents, I'll send you the complete whitepaper for the series when you do ALL of the following:

1.  Join my Fanpage @ www.facebook.com/TheLendingEdge


2. Post a constructive comment on my Fanpage


3. Email me requesting the whitepaper with your contact info.

If you're a real estate agent, please do the above and when you email me I'll send you a request to join the ActiveRain network for real estate professionals.  Once you use my invite to join, I'll immediately send you the whitepaper as a thank you.  If you're already on ActiveRain, please check out my blog posts there and follow the required tasks.

Thanks for reading and I hope you spread the word.

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Drew Sygit: CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MAMP Instructor & Speaker
The most Certified Mortgage Expert in the Midwest

Contact him for The Lending Edge 
P: 248-356-3739 • F: 866-215-3755 • dsygit@TheLendingEdge.com • www.TheLendingEdge.com