HR 3648 Mortgage Forgiveness Debt Relief Act

[Catia]

I found some really interesting info that may well apply to some of you here who have gone through foreclosure in 2007, or who are about to have it happen...
HR 3648 Mortgage Forgivness Debt Relief Act--

Again, I'm not an attorney, just giving my opinion on what I believe it means--go read for yourself, cuz it may help you!

I am sure most of you here are all up to date on this, but just in case you're not:
This bill was passed into law, and is retroactive for all of 2007.
If you had to short sale, on your primary residence the amount of debt that was 'forgiven' by your lender, will usually be 1099'ed to you, and you must claim it as income--Well, now you do not have to in certain circumstances.
Also, if your primary residence was foreclosed upon, and the lender 'forgave' your deficiency because it didn't sell for enough $$ to cover the debt--if they 'forgave' the debt, instead of filing a deficiency judgement, instead of you having to pay tax on the 'ghost income'--and getting 1099'ed--this will be forgiven, i.e: you will not have to pay tax on it as income.
This is supposedly retroactive to include the ENTIRETY OF 2007!

Now what I am unclear about is how this applies to BK. It is a new law, and refers to much ch 11 bk code stuff. Most of which bored me cross eyed with the legaleze.
But--lets say you are in, or were in foreclosure--but not BK yet, but your 1099 for the 'forgiven debt' is killing you--well this may well help you.

Certain restrictions do apply of course, and I am sure ammendments will be forthcoming...but as far as I understand:

Home must be primary residence, and ability to receive this tax debt relief is contingent upon which type of mortgage you had on your home--PURCHASE MONEY MORTGAGES ONLY--as far as I can tell. There are some, albeit few exceptions--for instance--if it were a refi, or a cash out refi--AND YOU CAN PROVE THAT $$ WENT DIRECTLY FOR REPAIRS OF THAT PROPERTY--you may be elligible for this relief. No 2nd/3rd/4th mortgages. Again, this is my interperatation of the new bill/law. I'm not an attorney, nor affiliated with any such entity--fact is, I am as broke, or more broke than most of you, I just thought this info may help someone here get a break if they got a 1099 for a mortgage forgiveness--since not all have filed their taxes yet...well--see if/how it may apply to your situation--I hope some of you can truly put this Act to use. And even if you did file your taxes, you can still get this tax break.
Now--**if they could only pass a bill, create a law that would FORCE these lenders to FORGIVE the debt as opposed to suing for deficiency--now that would make some progress**--less people would need to file BK...Or at least I wouldn't be even looking into it!
There is NOTHING in this bill/law/act that states that your lender MUST forgive your debt--nothing--so if they sued you instead of 1099ing you, well, it doesn't help you one bit as far as I can tell.

[Catia]

Hey there bigboy
Thanks for posting that, i totally suck at cut/paste etc.

Yes, some clarification would be in order, unfortuneately, the language past my attempt at explaining is beyond me--but--someone here should find some benefits...I mean surely a bill wouldn't be passed than no one can use right?! lol!!!

Here's to hoping some of you can get this break!!!

[cityish]

I'm confused about what they mean by primary residence. Do they mean primary residence at the time of default, or primary residence at the time the short sale is approved?

I'm in the middle of a short sale right now, which my realtor tells me was approved on Friday. I haven't signed any papers yet but I'm sure I'll be hearing more on that next week.

The house was always my primary residence, however when I defaulted last February, I moved out to an apt.

The house has stayed vacant, I haven't rented it out or anything like that, but yeah, technically, my primary residence changed to my new apt. address.

Under these laws does that mean I won't qualify for tax relief?

I'm going to be seeing my accountant in a few weeks but in the meantime I was wondering if anyone has any info on this. Thanks.

[StartingOver08]

Yes, you qualify for relief. This home was your primary residence. You only moved because you were in default.

[Catia]

I called the IRS toll free # and asked plenty of questions--and belive me--they were very helpful--even helping me figure out the #'s, basis etc.

I too had moved out of the house because I was told it was going to sheriff sale--the taxes were still in my name etc-IRS asked me if I moved due to pending foreclosure--I said yes.

One word of advice when taling to the IRS--don't offer up any additional info. Ask the questions-get the answers-offer nothing that you are not needing to say.

All in all, the form was pretty easy once I understood (um-they GAVE ME THE ANSWERS lol-"write this under #2 etc"-and I kept the name of the rep who helped me fill out the form-just in case)--I was transferred to several reps before they found one in the dept that is handling the mort forgiveness debt relief act.

I did mine for 2008--I believe 2010 is the last year--this act is temporary unless congress changes it again--I believe it is also retroactive for 2007.

Don't be afraid to call the IRS and ask questions-

[Patch]

in my case ,we went thru a foreclosure in 09,and the house was sold for what we owed.
there was no deficiency,therefore I should not get a 1099..am I right?

[HHM]

You may still receive the 1099. A 1099 is merely informational. You may just have to fill out the form to claim the exemption if you receive the 1099.

The law expires in 2012.

Here is the link to the IRS information page on the subject.

http://www.irs.gov/individuals/article/0,,id=179414,00.html

Here is the big catch: This only applies if the bank chooses to forgive the debt. If they decide to keep it collectible, this law is of no use. Here is the other possible rub; the law applies based on the year the debt was forgiven; thus, you could have the following scenario: home foreclosed in 2010; bank decides to keep debt collectible; 36 months goes by and the bank took no action to collect; thus, under IRS rules, the debt is automatically forgiven at that point; however, it is now 2013. The year the debt was forgiven was 2013; which means this law may not apply. We won't really know until the issue is challenged in court at some point.

[Patch]

thanks for your input.
our foreclosure was in 09,in april to be exact,so even with the 3 years ,we should be ok..just more paperwork to worry about.

[Faust]

Thanks!