Keep you paper work : Don't trust the Bank

When doing a Short Sale and Dealing with the IRS, you could be avoiding a Double Whammy



It is bad enough to loose one's home and have a negative credit on your FICO Scoring, but one must be aware that the lender or the lenders assignee, may continue to pursue the seller for the remainder of the debt. The other could be the IRS, may come knocking at your door, seeking tax on the amount of debt that was unpaid.



Paper work that goes along with the seller approval of a short sale may include a promissory note for the difference between the debt owed and the short sale proceeds. The other option is that the lender might ask for the seller to sign an acknowledment that the lender reserves the right to pursue the borrower for this amount.

The possibility residing is that even if the debt is forgiven, the borrower may be taxed on the amount he did not have to pay back. See IRS publication 4681.



These are some of the reasons why it is so important for the seller to keep all paperwork.

Suppose that there was no specific release of the debt and the paperwork had no reference to any thing at all. Then if you recieve a 1099-c saying the debt was forgiven and then taxable, then you will have support for the claim that the 1099-c is incorrect.



Suppose that there was no specific release of the debt and the paperwork contained no reference to it. Then the seller recieves a 1099-c saying debt was canceled. Keep that information just in case the bank or assignee, comes calling a year later trying to collect the debt.



"I am not an attorney or a CPA. Information that I express is only information that I seek out by searching into the Internal Revenue services and areas that provide to the public questions and answers on the short sale repurcussions. Please search for you self in the address bar of your computer