short sale or not

[dovette7]

We have surrendered home in bankrtupcy. Stay has been lifted and auction was to be June 5th. In the midst of this, there is a buyer who has submitted short sale offer. 1st mortgage suspended foreclosure date.

Question: I've been reading about short sales and I don't really understand. If the short sale is accepted by both lenders, there could be a defeciancy balance that they could apply as unsecured debt. However, what about recieving a 1099 from IRS? How does this work if I am in Bankruptcy and have surrendered the house?

The buyers really want my house and have worked hard with the lenders, but I don't want to be in more financial trouble because of a short sale vs foreclosure. Any suggestions?

[Granny]

Dovette

I ran across this before and can't quote the exact tax law, and don't have time right now to research it, but I do know you will be ok. Yes you will get a 1099 but there is a section of the tax code that applies if you are in bankruptcy that makes it a wash.

Give me a day or so and I will find it for you.

[HHM]

First off, the IRS does NOT send 1099's. The lender sends a 1099 to you and to the IRS informing them of the forgiven debt. If you do a short sale while in BK, there should not be a 1099 as the unsecured debt is part of the BK. Moreover, even if there is a legitimate deficiency balance, if you meet the IRS guidelines for being insolvent, then you do not need to declare your deficiency balance as income.

[dovette7]

Ok. thanks a lot for your help!