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"Paid in full" VS "debt canceled" for 1099C

Posted on: 03rd May, 2011 11:15 am
Hi. I just joined and I'm hoping someone here can help me out. I lived in California and got transferred to Massachusetts, so I was forced to short sale my house.

The real estate broker was a specialist in "distressed properties and short sales”. The sale went smoothly and he informed me the closing paperwork would state “paid in full” and the bank would not issue a 1099-C.

When we filed our taxes this year my CPA informed me there was in fact a 1099-c issued and we owe tax on the forgiven debt. I found out the bank “canceled” the debt. I have been reading about the debt forgiveness act, but apparently we don’t qualify because we also own farmland.

So I have 2 questions. If the closing was handled as “paid in full” and not “debt canceled”, would I have still been responsible for the taxes. Is there a way to go back to the bank and have them change the closing papers?

Any help would be greatly appreciated. Thanks! Mike
The irs takes the loss and income. So it depends on how your lender applied your payoff. If the lender applied the short sale, as paid in full, then there should not be a 1099c. If it shows account settled for less than account balance, then you have a deficiency. You would need to have your paperwork reviewed by an attorney. For the irs, they have a calculator on their site, if you google for it. It will tell you the exemptions that are available to you. The IRS you might be able to get reduced to no tax implication as I believe they have 250k/500k exemption for single/married. Likewise, if the lender did enforce a deficiency, then you would owe that money. I believe in CA, its a non recourse state, they take the property back used as collateral. Really you would need to contact your CPA about the taxes, and if you have a liability, talk to a RE attorney about the closing to see if you have a way to change the docs.
Posted on: 03rd May, 2011 11:39 am
Are banks known to make changes in documents after the sale has been closed? And, can my broker handle talking to the bank to get them changed?
Posted on: 09th May, 2011 05:12 am
Banks generally will not make changes, unless there is a significant reason to change the docs, wrong loan terms, ect...
Posted on: 09th May, 2011 08:54 am
I agree with Guest... The broker cannot influence the lender to change the documents.
Posted on: 10th May, 2011 02:12 am
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