With short sales the seller is already risking getting a 1099 for the difference of what they owed 
on the home and what it sold for after their “bank” approved the sale, this is known as phantom income. As such it’s standard practice for Realtors talking to a seller about selling short to advise them to speak to a CPA and/or real estate / tax attorney about the tax consequences before doing it…Well, it’s getting even more complicated now, apparently there’s a new trend of lenders beginning to require sellers to sign a note to repay that difference or they will not allow the sale; this is on top of the 1099.
With this double ding in mind it’s extremely likely that once sellers figure this out they are going to be more likely to do a deed in lieu of foreclosure or let the bank force them out on a standard foreclosure possibly resulting in, you guessed it, more bank owned listings. Of course this would not result in a surge of distressed properties on the market as it would just move from lots of short sales and bank owned to lots of bank owned and very few if any short sales and considering bank owned properties tend to sell a lot faster than short sales it could potentially soak up all that extra inventory faster? We’ll just have to wait and see what happens here but at the very least sellers considering selling short should consider the possibility of this happening before putting that for sale sign up.
Tags: Bank Owned, foreclosure, selling short, Short Sales