Foreclosure & Form 1099-A questions

[blew_it]

I used to “own” a house that was foreclosed on last year—strategic default, and I was upfront about it. I owed $339K on a 1st (no other financing). I saw that it sold later the same year for $265K. Yesterday, I received a 1099-A for the place. Box #4 of the form said the fair market value of it was $357K. Box #5 (Was borrower personally liable for repayment of the debt) was left blank (I am not, and have confirmed this with an attorney—purchase money loan, never refinanced, foreclosed upon, one-action rule). So I have the following questions:

1. Where did they get the FMV number of $357K?
2. Why did they leave box #5 blank rather than put in “No”?
3. Why did I not receive a 1099-C?
4. What are the chances I will receive a 1099-C later?
5. If I do receive a 1099-C later—say, next year—in which tax year will the forgiven debt income appear?
6. Per Turbo Tax and a tax accountant, I don’t have any forgiven debt income and no tax liability on this. Anyone disagree?

Currently, I am planning on plugging the numbers from the 1099-A into my taxes, which will not result in any tax liability. I have set aside money to pay the forgiven debt income taxes and am somewhat perplexed about what appears to be a small windfall.

My own hypothesis is that the bank is keeping the loan in limbo status on its books to avoid the write down—which would explain the wacky $357K FMV number and the ambiguity about personal liability. If anyone has other theories, I’d like to hear them. Thanks….

[SK in CV]

1. Maybe the amount due, including principle, interest, late charges, trustee fees, etc. Maybe not. Just a guess, and it wouldn’t be the right way to do it.
2. It’s not a yes or no question. The form says “Check here if the borrower was personally liable for repayment of the debt”
3. Because you had no debt forgiveness. (Simply put, from the lenders perspective, the foreclosure satisfied the debt.)
4. Remote.
5. Even more remote. Assuming the foreclosure was in 2010.
6. No

Lenders are not consistent on the way these forms are prepared. They are often prepared incorrectly. Based on this cursory information it would seem you shouldn’t incur any tax liability based on the foreclosure. If TurboTax agrees, go with it.

And no, the bank is not keeping the loan in limbo status. They have some flexibility with valuing delinquent loans. Once the foreclosure occurs, they must recognize the loss. Particularly if the REO was subsequently disposed of during the same year, they cannot delay recognition. What they used as FMV on your 1099 and how their valuing the asset in their records don’t necessarily have any relationship with each other. (Additionally, more likely than not, the “bank” did not own your loan, so loss recognition isn’t even an issue.)

[SK in CV]

1. Maybe the amount due, including principle, interest, late charges, trustee fees, etc. Maybe not. Just a guess, and it wouldn’t be the right way to do it.
2. It’s not a yes or no question. The form says “Check here if the borrower was personally liable for repayment of the debt”
3. Because you had no debt forgiveness. (Simply put, from the lenders perspective, the foreclosure satisfied the debt.)
4. Remote.
5. Even more remote. Assuming the foreclosure was in 2010.
6. No

Lenders are not consistent on the way these forms are prepared. They are often prepared incorrectly. Based on this cursory information it would seem you shouldn’t incur any tax liability based on the foreclosure. If TurboTax agrees, go with it.

And no, the bank is not keeping the loan in limbo status. They have some flexibility with valuing delinquent loans. Once the foreclosure occurs, they must recognize the loss. Particularly if the REO was subsequently disposed of during the same year, they cannot delay recognition. What they used as FMV on your 1099 and how their valuing the asset in their records don’t necessarily have any relationship with each other. (Additionally, more likely than not, the “bank” did not own your loan, so loss recognition isn’t even an issue.)

[SK in CV]

1. Maybe the amount due, including principle, interest, late charges, trustee fees, etc. Maybe not. Just a guess, and it wouldn’t be the right way to do it.
2. It’s not a yes or no question. The form says “Check here if the borrower was personally liable for repayment of the debt”
3. Because you had no debt forgiveness. (Simply put, from the lenders perspective, the foreclosure satisfied the debt.)
4. Remote.
5. Even more remote. Assuming the foreclosure was in 2010.
6. No

Lenders are not consistent on the way these forms are prepared. They are often prepared incorrectly. Based on this cursory information it would seem you shouldn’t incur any tax liability based on the foreclosure. If TurboTax agrees, go with it.

And no, the bank is not keeping the loan in limbo status. They have some flexibility with valuing delinquent loans. Once the foreclosure occurs, they must recognize the loss. Particularly if the REO was subsequently disposed of during the same year, they cannot delay recognition. What they used as FMV on your 1099 and how their valuing the asset in their records don’t necessarily have any relationship with each other. (Additionally, more likely than not, the “bank” did not own your loan, so loss recognition isn’t even an issue.)

[SK in CV]

1. Maybe the amount due, including principle, interest, late charges, trustee fees, etc. Maybe not. Just a guess, and it wouldn’t be the right way to do it.
2. It’s not a yes or no question. The form says “Check here if the borrower was personally liable for repayment of the debt”
3. Because you had no debt forgiveness. (Simply put, from the lenders perspective, the foreclosure satisfied the debt.)
4. Remote.
5. Even more remote. Assuming the foreclosure was in 2010.
6. No

Lenders are not consistent on the way these forms are prepared. They are often prepared incorrectly. Based on this cursory information it would seem you shouldn’t incur any tax liability based on the foreclosure. If TurboTax agrees, go with it.

And no, the bank is not keeping the loan in limbo status. They have some flexibility with valuing delinquent loans. Once the foreclosure occurs, they must recognize the loss. Particularly if the REO was subsequently disposed of during the same year, they cannot delay recognition. What they used as FMV on your 1099 and how their valuing the asset in their records don’t necessarily have any relationship with each other. (Additionally, more likely than not, the “bank” did not own your loan, so loss recognition isn’t even an issue.)

[SK in CV]

1. Maybe the amount due, including principle, interest, late charges, trustee fees, etc. Maybe not. Just a guess, and it wouldn’t be the right way to do it.
2. It’s not a yes or no question. The form says “Check here if the borrower was personally liable for repayment of the debt”
3. Because you had no debt forgiveness. (Simply put, from the lenders perspective, the foreclosure satisfied the debt.)
4. Remote.
5. Even more remote. Assuming the foreclosure was in 2010.
6. No

Lenders are not consistent on the way these forms are prepared. They are often prepared incorrectly. Based on this cursory information it would seem you shouldn’t incur any tax liability based on the foreclosure. If TurboTax agrees, go with it.

And no, the bank is not keeping the loan in limbo status. They have some flexibility with valuing delinquent loans. Once the foreclosure occurs, they must recognize the loss. Particularly if the REO was subsequently disposed of during the same year, they cannot delay recognition. What they used as FMV on your 1099 and how their valuing the asset in their records don’t necessarily have any relationship with each other. (Additionally, more likely than not, the “bank” did not own your loan, so loss recognition isn’t even an issue.)

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