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1099-C

Investment properties – foreclosed and received a 1099 C

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Question:  We had 2 investment properties – 1 foreclosed in 2009 and we just got a 1099 C for the second (which was part of the 80/20 purchase money. We also got a 1099 C for the second on the second property that foreclosed in March of 2010 again purchase money. How do we report this? Is this income? If so and we owe a crazy amount to the IRS what can we do when we have little reserve?

Answer:  – This is reported as income on your taxes. Your accountant will help you through all this. In many cases, you can claim insolvent which means your liabilities exceed your assets or if it was a personal residence because of the new laws you won’t have to pay taxes on this amount. Have your accountant help you with all this, it makes it much easier.

What determines whether I receive a 1099-C or a deficiency judgment for the bank’s loss?

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Question: If a non-primary residence in NY goes into foreclosure, what determines whether I receive a 1099-C or a deficiency judgment for the bank’s loss?

Answer: -A lot of times it just depends on the lender and the amount that’s deficient.  You really don’t have any control when your property forecloses.  If they believe you have some assets, they may file a judgment against you.

However, when you negotiate the short sale with the lender,  you can actually control what happens to the homeowner.  If you ask for a satisfaction which means “paid in full”, the lender gives up their rights to come after the borrower for a deficiency judgment which is really what you should be concerned about. They can still and most likely will issue the 1099-c for the homeowner. However, for most homeowners, form 982 will counteract that 1099. Just talk to your accountant about it.

 

Rental property in WA and am in military in NC presently.

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Question:  I have property in WA, currently it is a rental property since I am in the military and am in NC presently. Being that I cannot come close to renting the house for what I pay in mortgage, I am facing letting the house go. Trying to find out all the ramifications of foreclosure.

Answer:  – Well, the bank will either 1099 you for the difference if they are not able to collect what is owed, or they will file a deficiency judgment against you for the amount they lost. Ideally, you are hoping for a 1099-c because in most cases you can counteract the 1099-c if it’s your primary residence or you are insolvent.

Equity Line of Credit and Foreclosure

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Question: I live in California; if my home goes to forclosure and I have a an equity line of credit, will the line of credit, $150,000 also be wiped out? The line of credit is secured by the property.

Answer: Yes, if the line of credit is secured by the property in foreclosure. Most homeowners have a home equity line of credit that takes a 2nd lien position on their home. If the home is foreclosed on by the 1st lien holder and no one bids at the auction, the 2nd is wiped out, and the bank has the option of issuing a 1099 to the homeowner or filing a deficiency judgment against them. In most deed states, including California, it’s very uncommon for the lender to file a deficiency judgment. If you know what you are doing, there are things you can do to prevent a deficiency judgment altogether so it’s never an issue.