Home Loans and Support
  1. cobjosh

    cobjosh LoanSafe Member

    if the bank decides to let me do deed of lue would they send me a 1099 or would it just be done and I would not have to deal with the home any more. does any one knows what happens if they decided to agree . for a DEED OF LUE .
  2. ProfessorShays

    ProfessorShays LoanSafe Member

    This is one of those "it depends" answers. Let me give you a couple of examples. Let's say your house is worth $100,000. Let's say that you owe $100,000. You need to understand that there is no magic to a deed in lieu. It is simply where you transfer your property with a conveyancing document called a deed to you lender in exchange for full satisfaction of the debt you owe. So is the property is of equal value to the balance of the debt there is no debt forgiveness. So a 1099-C won't be issued.

    Where you run into a problem is if the loan balance is greater than the value of the property. In these instances the lender is likely to issue a 1099-C form, evidencing income resulting from debt forgiveness.

  3. cobjosh

    cobjosh LoanSafe Member

    I was thinking of trying to do a deed of lue in my property , sincee I already put it up for short sale and it did not sale so I figure I would try to do a deed of lue .but if I am going to get get a 1099 for the differce that the property is worth (50%less) I mightes will just let them foreclose.
    this is a money purchase loan at the time I got the home and I never refinace and I am in california. SO WHATS THE WORSE THT THEY CAN DO OR CAME AFTER ME FOR.
    the only reason I wanted to do a DOL was maybe that it would not hurt my credit as much and I can buy a home sooner, since right know if you rent is almost more that if you bouht a home at least in my area.
  4. LetsMakeADeal

    LetsMakeADeal LoanSafe Member

    PROF let me give you an actual situation...we are in the process of doing a deed in lieu on some custom property (1/4 acre of land...no house) we own (owe).

    We owe $200k on the note, the value has dropped to $135k. They told me yesterday that they would 1099 me for the difference.

    1. So if they sell the property for $135k they would 1099 me for $65k. What is the tax liablity on that (guestimate is fine)...are we talking 10%? 20%?

    2. Is it wishful thinking that they will try and sell it for a reasonable amount ($100k to $135k) vs. $25k or $50k?

    3. Lastly...if we are insolvent...does that help us in the tax of that amount?

    Thanks in advance.
  5. letma

    letma LoanSafe Member

    as an IRS employee, I can tell you that your canceled debt (or 1099) will not be taxable due to a new law that was passes recently. Here is an exert from the IRS website....

    If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.

    The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

    This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

  6. LetsMakeADeal

    LetsMakeADeal LoanSafe Member

    Is that two separate issues you are talking about? The first being the canceled amount (say on credit cards) may be taxable, whereas the second would be separtate because it is mortgage related?

    It is also my understanding that if you are insolvent at the time of the 1099 it is not subject to tax? Anyone? I'd like to find out the def. of insolvency.
  7. KT in CA

    KT in CA LoanSafe Member

    I've done a lot of research on insolvency because we are not protected under the MFDRA for our foreclosure due to refinancing. It is my understanding that you take a "snapshot" of your financial health the day before the foreclosure takes place. Using that date you will need to calculate your assets in one column (including FMV of the property that is foreclosing) and your liabilities in another (including balance on mortgage). Then whatever that difference is, assuming your liabilities are more than your assets, you can disregard the 1099 by that amount. So if you are insolvent enough to wipe out the whole amount then you are in luck. I am not a CPA or tax person, but this is just what I have learned by doing a whole lotta online research. I am seeing my tax person after this tax year is over to go through the specifics. You can Google insolvency and you will find more information.

    There appears to be no "form" to fill out to claim insovency (like a worksheet). The consesus I have read is that each person should do their own calculations and provide backup documentation if advised to. I image each CPA has a certain way they like to file the information so you would need to seek guidance from them on that.

    Hope that helps.


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