After a short sale has been successfully negotiated, the shortfall can be dealt with in various ways by the bank. These are the most common methods used by the bank to recoup losses.
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Deficiency Judgment - This is sought by the bank in order to recoup losses. A judge usually grants these fairly easily. However it can be expensive for the banks as the process has to be undertaken by the bank.
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1099 - Another option the bank has is to issue a 1099. A 1099 is an IRS form alerting the IRS that the homeowner has profited from a short sale. That’s right, the amount the bank was shorted is treated as a profit o the homeowner. The bank may issue a 1.099 or deficiency judgment but cannot do both.
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Unsecured Note - The bank can also negotiate to issue an unsecured note in the amount of the deficiency. This is similar to a credit card or personal loan not collateralized by anything.
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Payment In Full - Last but not east is negotiating with the bank for payment in full. Although this sounds impossible, it does happen fairly regularly. The bank is all too happy to put this expensive endeavor behind them as well. This should always be the main goal of any short sale negotiations.
These are all possible consequences of doing a short sale. You can avoid some If not of these. The State of Minnesota does not have deficiency judgments so the bank could not ask you to do this. A 1099 can be avoided if the home you are selling is your primary residence. Consult your tax professional for more information on keeping i your primary residence. Call us today for more details!
