Posted on: 08th Feb, 2008 01:35pm
If your house goes into foreclosure and it sells for less than what you owe on the property, there will be a deficiency. As a borrower, you're liable to pay it off. In case, your lender forgives this deficiency, it'll be considered as your taxable income. You'll be sent a 1099-A Form by the lender and you'll have to report the income to the IRS. Similarly, if your lender modifies the terms of the loan and it results in cancellation of a certain portion of the debt, the cancelled debt amount will be taxed by the IRS.
What is 1099A Form and why is it sent to you?
Your lender is required to report the deficiency from the foreclosure or the short sale to the IRS for tax purposes. This is why they send you 1099-A Form, which is mainly for informational purpose. However, if you receive a 1099A Form, it doesn't mean the deficiency has been forgiven. The lender can come after you in future to collect the debt.
If the lender forgives the debt, you'll receive a Form 1099-C. It suggests that the remainder of the debt has been cancelled and the lender will not come after you to collect the debt. You'll be required to report this as your income on the tax return.
If the lender forgives the debt, you'll receive a Form 1099-C. It suggests that the remainder of the debt has been cancelled and the lender will not come after you to collect the debt. You'll be required to report this as your income on the tax return.
Is there an exemption from paying taxes on this income?
If the mortgage is a recourse loan, you will owe taxes to the IRS on the cancelled debt amount. But the Mortgage Forgiveness Debt Relief Act, 2007 does allow you to exclude the cancelled debt amount from your gross income under certain conditions.
However, in case the mortgage is a non-recourse loan, the lender cannot come after you to collect the deficiency. They have to be satisfied with whatever they get from the sale of the collateral. So, even if there's a deficiency, it will not be considered as your cancellation of debt income. Thus, you will owe no taxes to the IRS due to the deficiency on the non-recourse loan.
However, in case the mortgage is a non-recourse loan, the lender cannot come after you to collect the deficiency. They have to be satisfied with whatever they get from the sale of the collateral. So, even if there's a deficiency, it will not be considered as your cancellation of debt income. Thus, you will owe no taxes to the IRS due to the deficiency on the non-recourse loan.
iT SHOWS WHAT WE OWED AND WHAT THEY SAY WAS FAIR MARKET OR REALY WHAT IT SOLD FOR AT THE AUCTION. SO THE DIFFERENCE WOULD BE INCOME RIGHT? CAN I USE THAT AS A LOST ON MY INCOME TAX FOR MY HOME? NEED HELP
Hi C.B.!
Welcome to forums!
A deed in lieu of foreclosure would be a good option for you in order to get rid of the property. Thus, you won't have to wait till November to get rid of the property. Moreover, you would be getting a certain amount of dollar from the lender as well.
Sussane
Welcome to forums!
A deed in lieu of foreclosure would be a good option for you in order to get rid of the property. Thus, you won't have to wait till November to get rid of the property. Moreover, you would be getting a certain amount of dollar from the lender as well.
Sussane
Hi there,
I bought a condo for 170K about 3 years ago. Because of my financial situation, I put the condo on the market back in February (currently it is on the market for 80K). I stopped making payments last month (August) and I am thinking to do a deed in lieu soon (October). My question is - if I will be able to get a job now, am I still going to qualify for deed in lieu; is the lender still going to forgive my debt and excluded me from the property taxes OR should I wait couple more months before I will take on any job just to make sure that the lender will not come after me. (WA State). [Can you have a job and still qualify for deed in lieu?]
Thank you,
Jeanine
I bought a condo for 170K about 3 years ago. Because of my financial situation, I put the condo on the market back in February (currently it is on the market for 80K). I stopped making payments last month (August) and I am thinking to do a deed in lieu soon (October). My question is - if I will be able to get a job now, am I still going to qualify for deed in lieu; is the lender still going to forgive my debt and excluded me from the property taxes OR should I wait couple more months before I will take on any job just to make sure that the lender will not come after me. (WA State). [Can you have a job and still qualify for deed in lieu?]
Thank you,
Jeanine
Hi Jeanine,
If you're facing financial hardship, then the lender will consider your request for a deed in lieu of foreclosure. If your request is accepted, then you won't be liable for paying the balance amount due to the sale of the property. However, if you get a job and your financial situation improves, then the lender may not consider your request.
Thanks
If you're facing financial hardship, then the lender will consider your request for a deed in lieu of foreclosure. If your request is accepted, then you won't be liable for paying the balance amount due to the sale of the property. However, if you get a job and your financial situation improves, then the lender may not consider your request.
Thanks
Hi,
Could I be eligible for the deed in of foreclosure ? I am 76years old and have suffered a min stroke and have vision difficulty since. Am also having difficulty eating, losing weight. Live in a very rural area 400 miles from my children. The emergency room is 40 miles from here. cannot drive much at all. My children are coming to get me in a caravan to a rented apartment close to them in two weeks. They are not giving me any choice. I will pay the rent. I cannot afford both or afford repairs I no longer want to stay in the house since my husband passed away. It's very isolated..
Would I be liable for the balance if I am eligible?
Thank you in advance.
Jeanette
Could I be eligible for the deed in of foreclosure ? I am 76years old and have suffered a min stroke and have vision difficulty since. Am also having difficulty eating, losing weight. Live in a very rural area 400 miles from my children. The emergency room is 40 miles from here. cannot drive much at all. My children are coming to get me in a caravan to a rented apartment close to them in two weeks. They are not giving me any choice. I will pay the rent. I cannot afford both or afford repairs I no longer want to stay in the house since my husband passed away. It's very isolated..
Would I be liable for the balance if I am eligible?
Thank you in advance.
Jeanette
hi artsie,
are you delinquent on your mortgage balance? if not, then it will be difficult for you to get a deed in lieu of foreclosure. the lender will consider your request if you're past due on your loan payments. nevertheless, you should contact your lender and apply for it mentioning your health situation. if the lender accepts it, you'll be able to get rid of the property and you won't be liable for paying the balance amount resulting from the sale.
are you delinquent on your mortgage balance? if not, then it will be difficult for you to get a deed in lieu of foreclosure. the lender will consider your request if you're past due on your loan payments. nevertheless, you should contact your lender and apply for it mentioning your health situation. if the lender accepts it, you'll be able to get rid of the property and you won't be liable for paying the balance amount resulting from the sale.
i did a cash-out refinance on my first house and bought a second home that i moved into since it was in a better neighborhood. the bank approved a short sale on the first home, and since it still qualify as a primary residence, i do not have to pay any taxes. do i have to pay taxes on the cash out money i received eventhough it was used to give the downpayment on the house i currently live in?
Hi Carla,
You won't have to pay any taxes for the money that you received as a cash out. The cash out money was given to you as a loan and when your property was sold off, it was recovered by the lender.
Thanks
You won't have to pay any taxes for the money that you received as a cash out. The cash out money was given to you as a loan and when your property was sold off, it was recovered by the lender.
Thanks
Hi JohnG,
You will be liable for paying taxes on the balance amount forgiven by the lender. However, depending upon the Mortgage Debt Relief Act, you won't be liable for paying the taxes on the forgiven debt.
A deed in lieu will lower your credit score by 250 points. Property settlement will lower your credit score further by some more points. Declaring bankruptcy is not a good option in my opinion. Thus, I would suggest you to go for a deed in lieu of foreclosure. It will take some time to rebuild credit. You can check out the given page to know some steps to improve your score:
http://www.mortgagefit.com/credit-rating/credit-repair.html
Thanks
You will be liable for paying taxes on the balance amount forgiven by the lender. However, depending upon the Mortgage Debt Relief Act, you won't be liable for paying the taxes on the forgiven debt.
A deed in lieu will lower your credit score by 250 points. Property settlement will lower your credit score further by some more points. Declaring bankruptcy is not a good option in my opinion. Thus, I would suggest you to go for a deed in lieu of foreclosure. It will take some time to rebuild credit. You can check out the given page to know some steps to improve your score:
http://www.mortgagefit.com/credit-rating/credit-repair.html
Thanks
We are considering a deed in lieu instead of letting our home go into forclosure. The bank has requested bank statements, pay stubs, past tax returns, and up to date financials for us. How will this be used to determine whether we are approved for a deed in lieu? Is there a "rule of thumb" for qualifying in regards to the appraised value of the home compared to the mortgage amount?
What are the factors the bank considers when approving or denying a DIL? If the DIL is denied, will giving the bank all those documents hurt us later in the forclosure process?
What are the factors the bank considers when approving or denying a DIL? If the DIL is denied, will giving the bank all those documents hurt us later in the forclosure process?
Hi Andrea,
The lender/bank wants to check whether or not you have a financial hardship. Unless you convince your lender about your financial hardship, the lender will not be ready to approve your request for a deed in lieu of foreclosure. I don't think giving the required documents will hurt you during the foreclosure process.
Thanks
The lender/bank wants to check whether or not you have a financial hardship. Unless you convince your lender about your financial hardship, the lender will not be ready to approve your request for a deed in lieu of foreclosure. I don't think giving the required documents will hurt you during the foreclosure process.
Thanks
Can I qualify for the Mortgage Relief Act of 2007 if I bought in 2006 and have been the primary resident/owner for the last 4 years without any refinancing in the state of CA?
Do you have to pay any taxes on deed in lieu for investment property? If so, how is it calculated?
Welcome whataboutca,
This law applies to qualified principal residence indebtedness that was forgiven in calendar years 2007 through 2012. Thus, if your property was foreclosed in 2006, you won't be able to qualify under this law.
To Guest,
In case of deed in lieu of foreclosure, the deficient balance will be forgiven by the lender. Under the Mortgage Debt Relief Act, you won't have to pay any taxes for it.
This law applies to qualified principal residence indebtedness that was forgiven in calendar years 2007 through 2012. Thus, if your property was foreclosed in 2006, you won't be able to qualify under this law.
To Guest,
In case of deed in lieu of foreclosure, the deficient balance will be forgiven by the lender. Under the Mortgage Debt Relief Act, you won't have to pay any taxes for it.
can a bank do this without the owner signing and agreeing to this If the note on priniciple and interest is paid in full and there is a dipute on service fees which has not been validated by mortgage company can they do this?