What is the “Best Result” of a Short Sale? – Part I

Mitigating the Borrower(s)’ damages is the ultimate objective of a Short Sale. Are you aware each individual that signed the Promissory Note is responsible for the entire financial obligation. Actively pursuing and successfully closing a Short Sale does not mean the financial obligation has been canceled or the Borrower(s) is released from the obligation. An improperly facilitated Short Sale has the potential to create additional and continuing financial obligations for the Borrower(s) which is contradictive to the intentions of participating and pursuing the loss mitigation option.

When Short Sale Lenders issue formal written approvals of the offer for Short Sale, it is a requisite that the approval contain terms that the Mortgage will be satisfied in order for the Seller to meet the terms and conditions of the Contract and be able to provide clear title at the closing. It is just as important that the approval letter provide a full release of the remaining monetary obligation after the proceeds from the Short Sale closing have been credited to the total outstanding indebtedness.

So many Sellers are unaware or misinformed that an approval letter issued by the Short Sale Lenders can require the Borrower(s) to continue to be responsible for the remaining outstanding indebtedness. Formal approvals from Short Sale Lenders should contain provisions that upon receipt of the proceeds from the Short Sale, combined with any agreed to cash
contribution or executed side Promissory Note, a Satisfaction of the Mortgage will be recorded; the original Promissory Note will be canceled/satisfied; and the Short Sale Lenders waive their rights to pursue a deficiency money judgment. Short Sale Lenders are required to report to the IRS. This reporting can be done in a few different ways: 1099A or 1099C. Any Short Sale formal written approval which includes a provision for the Satisfaction of Mortgage, but does not provide for a cancellation or satisfaction of the remaining outstanding indebtedness and a waiver of the rights to pursue a deficiency money judgment, can result in the issuance of a 1099A.

The issuance of a 1099A provides the Short Sale Lenders with the option of possibly pursuing a deficiency money judgment because the remaining outstanding indebtedness was not cancelled. If the Short Sale Lender chooses to not pursue the deficiency money judgment during the statutory timeframe, they can then cancel the remaining outstanding indebtedness amount. The cancellation of this amount shall result in the subsequent issuance of a 1099C. Receipt of the subsequent 1099C, after initially receiving a 1099A the first calendar year after the short sale closing, means the remaining debt has been written off/cancelled and no money judgment shall be pursued.

DELLUTRI LAW GROUP
CARMEN DELLUTRI, ESQ.
KMarshall@DellutriLawGroup.com
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Fort Myers, Florida 33919