If an investment property is in short sale process and the 2nd mortgage file suite to get his money but at the same time sent 1099a. what to do?

Asked by Laily, Centreville, VA Sun Jan 31, 2010

I have an investment property with 1st and 2nd mortgage. It is in the process of short sale and not finalized yet. 1st mortgage is $450K and 2nd is $87k. The 2nd mortgage is taking me to the court to pay the debt but they also reported 1099 to IRS. they indicated FMV of $305K. Is it possible for them to ask for their whole money and also send 1099 a? please advise what to do Thank.

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Patrick Sams…, Agent, Centreville, VA
Fri Apr 2, 2010
Hey Laily,

You recieved some good advice below. Certainly when you get in the IRS and Law, you need to consult a professional. I've know and seen a lot of situations that grew into bigtime trouble. The early in the process you determine your direction the better.

Best of luck!

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Brian Gormley, , Montgomery County, MD
Mon Feb 1, 2010
to answer your question, a 1099 and a short sale need not be related. lenders are under no obligation to accept a payoff less than the amount owed and release their lien (the short sale end of it). if you have defaulted under your promissory note, they have the full panoply of remedies under the mortgage/deed of trust, including issuing a 1099, suing you in court, etc.

I'm an attorney (licensed in MD/DC) and real estate broker (licensed in MD/VA/DC); please feel free to call me to discuss further.

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Laily, , Centreville, VA
Sun Jan 31, 2010
What i dont understand is when short sales is not finalized why the 2nd mortgage reported 1099 to IRS?
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Richard Leci…, , Tucson, AZ
Sun Jan 31, 2010
You had best be talking with a lawyer Fast
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Vicky Chrisn…, Agent, Purcellvile, VA
Sun Jan 31, 2010
These are truly questions for accountants and attorneys. I am just confused b/c you said it is in the process of a short sale. Until the property's been foreclosed upon or the short sale finalized, I don't truly understand these steps.... it seems that there is information missing from this question.
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Charlie Rose, Agent, Springfield, VA
Sun Jan 31, 2010
You should check with an attorney regarding the suit.
The IRS reporting of the 1099 (their loss = your gain) is totally unrelated to their attempt to recover the loss in court, and the filing has more to do with their debt write-off than your liability, which may be waived under recent rules.
You should work through the first trust holder to try to satisfy the second. They may have more to gain by working out a (partial) payment to the second trust holder. This would allow the short sale to proceed and avoid a costly foreclosure process in which the second could lose everything anyway. Usually an offer of a "small" payment will satisfy them against a total loss.

You should talk to your agent or short sale negotiator about all this...or call me if you don't have one.

You can also see the Long & Foster affiliate website for short sales in the web reference below.
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Keith Manson-…, , Milwaukee, WI
Sun Jan 31, 2010
Yes. The 1099A is given at the foreclosure indicating the debt outstanding and the fair market value or bid a foreclosure sale. If they filed a 1099c that form indicates a discharge of debt and will be reported as income for income tax purposes for IRS purposes.

Second mortgages are more and more going after people for debts if they did not sign a release that does not allow them to persue the deficency.

Talk to a tax perfessional and credit expert or attorney to address the issues.

Wish you luck

Keith Manson

First Weber Group
Certified Distressed Property Expert
Metro Milwaukee

0 votes
, ,
Sun Jan 31, 2010
Speak to an accountant to get this question answered.
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