This is a Question we get a lot. Should an Agent negotiate down a deficiency? Well, an agent represents the fiduciary responsibility of their seller and in our book that includes the impact of a short sale, whether that is 1 day or 1 year after the short sale.
As an agent representing a seller make sure you go over the short sale approval letter with them before they agree. The bank will lay out exactly what their intent is in the approval letter. If a bank does not specifically state that they are waiving the deficiency or settling the debt look for other clues in the short sale approval letter. If the bank states they will be issuing the seller a 1099C then by definition of a 1099C they are waiving (writing off) the debt.
How do you negotiate down a note or cash? If the bank is waiving off the debt they may still ask for your seller to contribute a promissory note or cash contribution. If the bank is asking for a note or cash from your seller it is either due to one of the following: 1) there was something in the sellers financials that made the bank feel they had money or the means to pay, or 2) the bank is just fishing to see what the seller will agree to.
If the bank is asking for a note or cash from the seller and they cannot afford it, and you can prove it, then push back on the bank with hard proof. Many times the bank will back off. If the seller has the means or the bank wont back off of the note or cash contribution we have found the next 3 step process works the best with the bank. 1) First start with the amount and negotiate it down as low as possible. 2) Second negotiate the terms. Banks will usually do 0% interest so you will have to negotiate the length to get the payment amount down. 3) Third, with a note ask the bank for a payment in full amount at the day of the closing. sometimes banks will take a small percentage of the note if paid off in full at closing. the last one we had like this the bank wanted a $15K note but was willing to take $3K cash to settle the note at closing.
So the next question we always get is, what is the impact of a 1009C. You can read IRS guidelines or hire a tax professional. But neither of those are fun. My next post will cover 1009C's in more detail.
To your success!