Deed in Lieu Process...I am liable for repayment?

terrysherrypj · Joined: 20 Jan 2008 Posts: 1 1.69 Dollars($)

I went through the deed in lieu process on my home instead of foreclosing. I just received a 1099-A form. In box 2 the balanace is $73,359.79 and in box 4 the amount is $73,000. Box 5 is check "yes" that I am personally liable for repayment. My understaing was that in doing the deed in lieu I was not liable for repayment. Should I get a lawyer?

Guest 0.10 Dollars($)

How's this possible? I too knew that when one goes for a deed-in-lieu, he need no pay for the deficiency, if any.

Jessica

Hi Terry,

Welcome to our community forums.

The Form 1099-A is given to those who have handed over their property to the lender. If the lender/bank has no option other than sell property to recover the unpaid debt, then he has to provide the homeowner with a Form 1099-A. On account of this, homeowner may get any part of the proceeds which exceeds the balance owed. And, this excess amount needs to be reported on the form that you've received.

I think the balance is specified in the form for the sake of making all parties aware of it. The box 5 actually asks you to mention where you are personally liable for the repayment since the time the debt was created. And, it should be marked "yes" because you are indeed responsible for the repayment. However, this doesn't mean that you have to pay for the deficiency if you hand over the property through deed-in-lieu.

I hope this is clear to you.

If you have any further queries, please don't hesitate to ask.

Regards,

Jessica

lisascherzer · Joined: 04 Jan 2008 Posts: 746 93.70 Dollars($)

You have to report that amount as income on your tax returns. I don't agree that creditors should be allowed to do this but they are, unfortunately.

livinginnky · Posted: Tue Jan 22, 2008 12:30 pm Post subject:

Contact a tax advisor. I believe the tax exceptions where made into law from last year but I am not an expert in this area. If they where and you qualify you may not have to pay the tax. The lender is still required by law to report the deficiency however.

Please come back and let us know what your tax advisor says.

Guest 0.10 Dollars($)

If the fair market value on the 1099-A is less than the balance in box 2, is that reportable income on the tax return? I also did a deed in lieu of foreclosure. I was under the impression that any difference would not be treated as income to me.

lisascherzer · Joined: 04 Jan 2008 Posts: 746 93.70 Dollars($)

Hi Diane,

The lender probably just didn't tell you about it since they do not need to by law. An accountant or tax professional should be able to answer this question with certainty for you.

jameswells · Posted: Sat Jan 26, 2008 11:53 pm Post subject:

There are definitely tax consequences when involved with a deed in lieu. You should always seek advise before you perform one, but if it is too late- make sure to talk with one now to avoid further issues.

Guest 0.10 Dollars($)

Does the foreclosure process also generate a form 1099-A to be sent? It sounds to me that a deed in lieu of foreclosure doesn't really release you from tax consequences like I thought. Or maybe it's that you don't have to pay the money back to the lender, but the IRS is a whole different thing. What are the consequences between the lender and borrower if a foreclosure happens? Does the borrower have to claim the whole amount as income?

larry · Joined: 27 Jun 2007 Posts: 3328 473.40 Dollars($)

Hi Diane,

Welcome to the forum.

If the lender approves you for Deed in lieu then you need not to pay the deficiency that you owe to the lender. But it will be considered as your income and you will have to pay tax on that amount to IRS.

But in the process of foreclosure the deficiency judgment does not usually exempted. You will have to pay the amount to the lender.

Hope it is clear to you.

Feel free to ask if you have any further questions.

Best of Luck.
Larry

Guest 0.10 Dollars($)

What are the tax consequences from a regular foreclosure? We rented our home as a land contract and have documents to prove it. Can that help us to get out of paying the tax? I am understanding that the amount that I have to claim is the difference between the fair market value and the balance left on the loan. Is that correct?

larry · Joined: 27 Jun 2007 Posts: 3328 473.40 Dollars($)

Hi Diane,

Welcome back.

If you profit say for $25000 after foreclosure. Then you will have to pay tax on that amount.

And then again if the sale price is lesser than what you owe for $ 40K and say you can't pay it. Although the lender will not exempts it generally but if exempts it, then you will have to pay tax on that amount.

The law of Tax is vary complicated and varies with circumstances. So a through examination by a tax professional is required.

How much do you owe to the lender? What is the appraised value of your house?

Thanks.

Guest 0.10 Dollars($)

On the 1099-A that I received, the fair market value was $85,000. The balance on the load is 104,000. Do I have to claim the difference? Does that go on a Schedule D? Thanks.

Samantha · Posted: Tue Jan 29, 2008 12:48 am Post subject: RE: deficiency in foreclosure

Hi Diane,

Under the Mortgage Debt Forgiveness Relief Act, an individual need not pay tax on cancelled debt, that is, the difference between the loan balance and the sale price of your home. Know more... . So, don't worry, you need not claim it on your tax return.

As Jessica has said in her post above, the form is issued to the borrower just to make all parties aware of it and not for retrieving the canceled debt or making the borrower pay any tax on it. The law rules out such possibility. So, I don't think you should include it in Schedule D.

Hope this helps...

God bless you.

Samantha

Guest 0.10 Dollars($)

I am so confused on what to believe now. Now, I am being told that the Debt Forgiveness Relief Act says I don't have to claim the difference on my taxes. Can anyone else confirm this?

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