We see those 1099 forms and think they are official documents. It says right there on the bottom "Department of the Treasury - Internal Revenue Service." The form was NOT generated by the IRS. It was created by the lender and might be wrong.
According to Bill Purdy who teaches about Federal Income Tax at Lincoln Law School, these 1099s are often wrong in stating there is a taxable event as a result of foreclosure. When a non-recourse debt is foreclosed in California no cancellation of debt income occurs. If there is no personal liability on the loan, there can be no improvement to the borrower's balance sheet when the collateral is foreclosed.
Non-recourse debt might be statutorily non-recourse, as the purchase money non-recourse provisions of California law; it may be non-recourse by reason of a bankruptcy; or it may be non-recourse because the collateral was acquired subject to the lien.Bottom line - if you receive one of these 1099s see a knowledgeable attorney before assuming you'll have a large tax bill to pay.
Call Your Lender
If you can’t make your mortgage payment, talk to your lender. If possible call before the payment is due and you’ve missed it. Always call as soon as possible when you’re in trouble.
Lenders would rather be paid than take your home. A lenders’ preference is to be paid the full amount but you may be able to work out other arrangements. Try some or all of the following:
Your lender may be overwhelmed by requests for assistance in this down economy so you may have to make a few calls and be persistent. Remember, if you've fallen behind on mortgage payments, or have reason to believe you're going to, you're not alone, which means your lender may have solutions ready to propose when you call.
- Ask for a reduction in the monthly payment amount,
- Ask for a month or two break from making payments (a time off, the loan can be extended),
- Ask to split the monthly payment into two bi-monthly payments,
- Ask for an extension of time to pay,
- Ask the lender to accept less than a full payment.
If you can't resolve your issues with your lender’s assistance it's time to try something else.
Call a Housing Counseling Agency (Free Assistance)
The federal government's HUD-sponsored housing counseling agencies in your area are available online at www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm or by calling 1 (800) 569-4287 or TTY 1 (800) 877-8339.
These nonprofit agencies offer free services to help homeowners avoid foreclosure. They’ll help you determine if you qualify for the new Making Home Affordable Programs that include loan modifications and refinancing to reduce monthly payments and help you keep your home. You may also check online at www.makinghomeaffordable.gov or call 1 (888) 995 – HOPE (4673) or TTY 1 (877) 304-9709.
If you are eligible for any programs, the HUD-sponsored agency will assist you with the process.
Watch Out For Scams
When a foreclosure complaint is filed it becomes public information. Some private companies use this information to contact the homeowners in foreclosure. You do not need to pay a private company for help. Use the free help. There is nothing these private companies can do that the free government sponsored programs can’t.
Some of the private companies propose programs that are scams. Scam warning signs:
Do talk to a HUD-approved counselor before you agree to make any payments or sign anything. Do not sign over the deed to your property to any organization or individual unless you are working directly with your mortgage company to forgive your debt. You can’t afford to lose your house to a scam.
- A company charges a high fee,
- A company asks you for up front money,
- Promises a particular outcome,
- Tells you not to contact your lender or lawyer,
- Tells you to make your mortgage payment to someone different than your lender, or
- Proposes any kind of rental or sale plan.
This Will Take Time and Energy
No one can promise to keep you in your home but the sooner you talk to an agency or your lender, the sooner you’ll get some help. It’s also likely that the sooner you get help, the more options will be available to you.
You know that if you do nothing, you’ll likely lose your house. So don’t procrastinate – do get help. Many people are having difficulty in this down economy and government has offered free assistance to help. It’s your tax dollars that paid for the resources and programs that are available so take advantage of them.
You’re not alone which also means that you need to be persistent and follow through with your lender and the government-sponsored counselor. There will be many others competing for time and resources but saving your house is worth it. And if you’re not able to save your house, you’ll know you did all you could.
Take steps early. Don’t wait until you’re so far behind that it can’t be fixed. Be prepared to fight.
It’s also possible that you can’t afford your house anymore. If that’s the case know you’re not alone. Many others are in the same boat you are – job loss, illness and resulting medical bills, or being a little under water each month can ultimately result in losing your house.
Don’t hesitate to ask for help. You may be able to save your credit by a short sale of the house. In some cases a reverse mortgage may work. Or you may be so overwhelmed with debt that you need the fresh start available through bankruptcy. Ask for a referral. Many attorneys offer a confidential consultation at no charge.
Before calling your lender or a credit counselor, use this checklist from the Making Home Affordable Program so you have all the information on your loan and finances ready for review.
It may be useful to have a letter describing any circumstances that caused your income to be reduced or expenses to be increased (job loss, pay cuts, divorce, illness, etc) if applicable.
- Information about your first mortgage, such as your monthly mortgage statement.
- Information about any second mortgage or home equity lines of credit on the house.
- Account balances and minimum monthly payments due on all of your credit cards.
- Account balances and monthly payments on all your other debts, such as student loans and car loans.
- Your most recent income tax return.
- Information about your savings and other assets.
- Information about the monthly gross (before tax) income of your household (everyone who lives under the same roof), including recent pay stubs, if you receive them, or documentation of income from other sources.