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1099C--How is the Fair market value of your home determined?

Discussion in 'Deed in Lieu of Foreclosure - Do You Need Help to ' started by mrange25, Nov 4, 2009.

  1. mrange25

    mrange25 LoanSafe Member

    I am going to let my house go, but am worried about what the lender deems as "fair market value"? How do they know 1000 miles away? Is it what the property sells for? What if it sells for $1, am I screwed?
  2. spinner

    spinner LoanSafe Member

    Following up on this question as it is important for everyone who will be taxed. Has anyone disputed FMA? How could you do your own homework so that you are armed if you ever need to dispute the FMA.
  3. knownick

    knownick LoanSafe Member

    Mine was the price it "sold" for at the auction sale.
  4. KFish

    KFish LoanSafe Member

    Did the bank buy it? Or was it sold to another party?
  5. knownick

    knownick LoanSafe Member

    It went back to the bank.
  6. KT in CA

    KT in CA LoanSafe Member

    The correct way to do it is to take estimates from surrounding properties and then value the foreclosure based on that, like an appraisal. (That's why people are sometimes advised to get an appraisal of their home before the foreclosure so they have something to fight with if the FMV from the lender is too low.) Then at auction they set a price which normally takes into consideration the value from the surrounding properties. If someone bids on the home and gets it that value will be used. If it goes back to the bank, the opening bid amount they set will be used. That is the amount that should be the FMV on the 1099-C. Now, they are SUPPOSED to do a lot of things. They are "supposed" to send out 1099-C's, but apparently my lender was just waiting for me to call and request mine.

    I printed out values for our home from a couple different websites before we foreclosed. The opening bid they set at auction was in the ballpark with the values I had, so it better be the number they use on the 1099-C.
  7. HopingtoFind

    HopingtoFind LoanSafe Member

    If this is your primary residence then it is not going to matter as far as Federal Income taxes are concerned. Canceled debt is exempt for primary residences according to Mortgage Debt forgiveness Act.

    But a good way to confirm the FMV is to have a Broker run some comps at the time of the sale.
  8. KT in CA

    KT in CA LoanSafe Member

    I think that applies only if the loan is non-recourse. Ours was a refinance and we pulled cash out which makes it recourse. We are exempt from protection under the MFDRA and have to file insolvent for protection.
  9. Mar007

    Mar007 LoanSafe Member

    is filing for insolvency as complicated as it seems? i am going that route once my rental home forecloses since i am not protected by MFDRA (plus it was a refi as well).
  10. KT in CA

    KT in CA LoanSafe Member

    Haven't met with my CPA yet, but from all the research I've done it doesn't seem to be. I knew early on we would have to do this, so I found as much information as I could on the topic. The only thing I wasn't absolutely clear on is when the valuation of items takes place; if it is the day before the foreclosure or the day of the foreclosure. The IRS site I believe says the date of foreclosure. You just have to list your assets and liabilities, like your own personal financial statement. You even have to value your personal items (furniture, clothing, art, etc..). Then whatever the difference is between those two numbers is your level of insolvency, and that amount you can use to offset your canceled debt. I have the amounts of all of our debts and assets on the day before and the day of our foreclosure. The only thing I haven't done yet is valued our personal property. I'm waiting for some guidance from the CPA on how to do that.

    If you do a search on the IRS website you can get some valuable information there.
  11. HopingtoFind

    HopingtoFind LoanSafe Member

    If it was your primary residence then it doesn't matter what type of loan, recourse or non-recourse. You can still exempt the original amount borrowed.

    So for example if original loan was $200k and then you re-fied and pulled out $50k making your loan $250k and then had $100k of canceled debt, I believe you could still exempt $50k through MFDRA.

    Check with CPA of course.
  12. Mar007

    Mar007 LoanSafe Member

    Our rental was our primary residence orginally. We lived in the home from 2005-2009. We purchased a new home in 2009 and therefore started renting out our old home. Would we be protected under MFDRA if we foreclosed on the rental (which was our primary residence originally)?
  13. HopingtoFind

    HopingtoFind LoanSafe Member

    You wouldn't be protected under MFDRA on your rental. You could only have one primary residence at a time.
  14. spinner

    spinner LoanSafe Member

    Do the banks take into account the upgrades (landscaping, hardwood floors, etc) done to the house when coming up with FMA? Do they get an appraisal done by a professional? How about other sold homes - such as a home with the same floor plan but less upgrades sold for $380. Do the lenders take that into consideration as well?
  15. knownick

    knownick LoanSafe Member

    In my experience they don't take any of that into consideration. They don't have hours and hours to devote to determining that for the tens of thousands of foreclosures happening every month.

    In California they report the FMV on the 1099-C as whatever the house sold for at auction.
  16. ItWillWork

    ItWillWork LoanSafe Member

    If I filed Chapter 7 after the foreclosures of investment properties, do I get a 1099-C? If I do, how does it work? I'm asking for when I do taxes next year.
  17. mrange25

    mrange25 LoanSafe Member


    Good question. I have researched this area quite a bit, although I am not a CPA.

    If you file for bankruptcy and surrendered the properties you will probably still receive the 1099-c. In your taxes, or whoever does them, make sure they file form 982. On there, it will say something about situatiosn where there is no cancellation of debt including insolvency, bankruptcy, mortgage debt relief act, etc. Then you attach the 982.

    Hope this helps. you might want to do a google or actually go to the IRS website to see the form.

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