I stumbled across a great article on Kiplinger.com talking about the impact of short sales on homeowners.  I mean, what happens to the amount of debt that just “vanishes” when the lender takes a reduced payoff?

Frequently sellers ask me about this, and this article makes some great points.

The bank CAN issue a 1099-C….doesn’t mean that they WILL issue it.

We tell all of our Short Sale clients that we’ll do the best to negotiate a total release from the debt, however, we can’t promise them that.

Here’s another great analogy that I use when I talk to homeowners who are short sale candidates and they bring up this issue.  Let’s go with the example of the $300k debt and 260k SS acceptance, just like in the article.
The bank basically “gave” them $40k.

I ask them:

“Mr Seller, if I could give you a winning lottery ticket for $40k, would you turn it down because you would have to pay taxes on it?  Of course you wouldn’t”

Between that, the fact that the lender MIGHT issue them a 1099-C (not guaranteed that they will), and the fact that you can help them avoid a foreclosure on their credit report, should pretty much kill any seller objections they’ll have to working with you.


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