make WWAY your homepage  Become a fan on facebook  Follow us on twitter  Receive RSS Newsfeeds  MEMBERS: Register | Login

Troubleshooters: Short Sales

READ MORE:

In the current real estate environment, you've probably heard about short sales. That's when you owe more on your house than it's worth, and the bank allows you to sell it for less than you owe them. It's typically a lot less damaging to your credit score than a foreclosure, but there are some quirks that one local woman is learning the hard way.

Marti Maxim bought a house in 2003, during the height of Carolina Beach's real estate boom. Living on an island wasn't all she'd hoped it would be, and then her mother got sick. Maxim decided to sell her house and move closer to her mom, but she couldn't find a buyer.

"I had the house rented, and I was losing like $900 a month on it. I couldn't go on anymore,” Maxim said. That's when she decided to do a short sale. She got an offer, and Regions Bank allowed Maxim to sell the house for $82,000 less than she owed on it. Other than the 50 point ding on her credit for the short sale, she thought her housing nightmare was finally over. Then she got a 1099 tax form in the mail from her bank, reporting she had received the $82,000 as income.

Maxim couldn’t believe it. “I took a horrific hit with this short sale financially. Now you're gonna hit me again with a 1099?"

Maxim feared she'd have to pay tens of thousand dollars in taxes on the income she never actually saw. Adding to her frustration, she says she was specifically told by the bank and her real estate agent she would not get a 1099 from the short sale. “This is a situation where nobody knows exactly what the right answer is,” she said, referring to the conflicting information she was getting about short sales.

We sat down with J. Wesley Casteen, a Wilmington attorney and Certified Public Accountant.
He says short sales are complicated. "Each individual situation is different, and the decision of whether or not a short sale is in the best interest, or whether or not it's a good move from a tax perspective is dependent upon the individuals facts or circumstances, and there's no way to give a blanket yes or no answer," he said.

Casteen said lenders are required to send out 1099 forms like the one Maxim got, but he told us that doesn't necessarily mean she has to pay taxes on that income. If you can prove you're insolvent or bankrupt, you shouldn't have to pay taxes on the debt the bank has written off.

The 2007 mortgage debt relief act also helps people like Marti, who are in a financial mess, but are not technically insolvent or bankrupt. It forgives tax liability for people on their principal residence, who took on debt to buy their home or make home improvements.

Bottom line - we found out Maxim won't have to pay taxes on that $82,000. For more information on the debt relief act, go to http://www.irs.gov/individuals/article/0,,id=179414,00.html.

Disclaimer: Comments posted on this, or any story are opinions of those people posting them, and not the views or opinions of WWAY NewsChannel 3, its management or employees. You can view our comment policy here.

»

I put in a bid on a house

I put in a bid on a house first week of october2009 on a home in short sale. they were fairly quick on accepting my bid and putting it under contract, then it just sat, no one knows what the holdup was suntrust (the bank who had the house) wouldnt answer any phone calls.. it was the craziest situation, I finally just pulled out of the house 2 days ago. I was so tired of waiting. if you didnt want to sell the house in the first place why put it up on the market?! totally blows my mind!

Re: short sales

What is the policy on short sales? How long do people have to wait to be approved? I put in a contract to buy a short sale on 12/19/09 and I am still waiting! Also, an elderly couple I heard of (I work with their daughter) was forced to walk away from their (short sale) home (this month) because the person waiting to buy it decided to walk away. This person waited over a year! What makes this story even sadder is that the father is sick and awaiting a kidney transplant. The home is in Illinois but the father is on a transplant list in Florida. Therefore, they had no choice but to leave the house behind. This elderly couple did everything that was asked of them and yet they could not get the bank to approve the sale. Unfortunately, now the same thing is happening to me. Who stands to gain from having us wait? The bank in both cases was/is Bank of America (BofA).

short sale

this woman's story is a good example of why if at all possible people should rent for about six months or so before they decide to buy, especially if they do not know the area that well and/or do not have relatives or friends nearby.

Let's see

she took the word of a Realtor. They will say about anything to get a sale.

She took the word of a Bank --one which has a glut of foreclosures.

Just like those debt relief agencies, that will get your creditors to take pennies on the dollar -- you get a 1099 for the amount the creditor writes off.

The word of a Realtor / How long to wait on a Short Sale

First off, the realtor should NOT have advised her on tax issues, that is not our job, that is the job of a tax attorney or a CPA, and that realtor should find themselves in HOT WATER with the board and the NC Real Estate Commission. We, as brokers will not say anything to get a sale, we aren't timeshare salesmen, we are real estate professionals, and personally I take offense to being called a crook. Most of us are bound by ethics and morals to treat customers and clients with honesty and fairness.
As for the banks, no one knows from one minute to the next what the banks are actually going to do on a short sale. You have to remember that once a short sale property goes under contract it belongs to the bank, and the bank makes the rules, which means they can take offers up to the day of closing, get a better offer, take that offer and close and never let the first party know that the house sold to someone else. Thus all of the addendi...My advice to anyone interested in a short sale is to either accept the fact that even if it goes under contract there is still a chance that you won't get it, and if you do it may take six months to close, so unless you aren't in a hurry and unless you just absolutely HAVE to have the property, I'd keep on looking.