Denver Colorado Short Sales

News for Licensed Realtors and Brokers for the State of Colorado Doing Short Sales

kjhomefinder Denver (Key Concepts) — Fri, 17 Apr 2009 19:34:24 -0700

It has come to my attention that more and more brokers in Colorado are doing short sales. This is great as homeowners need good professionals whom they can trust. Real estate is a very competitive field in general, but we need to really look after each other and our State as a whole. Even more importantly we need to look after our clients.

Recently I signed up with a company based out of California who gave me 2 short sale leads. This company informed me that a condition of my obtaining the leads was that they were to negotiate the short sale for me and I would just need to list it. I was a bit skeptical at first, but took the short sale listing subject to.

Short sales are not easy for the most part, but a good short sale agent can certainly make things a lot easier for the seller client. After I had listed the property and the sellers had submitted their short sale package in full the short sale itself was delayed several times due to the unprofessional and unprepared company from California claiming to know how to do short sales nationally.

A few things they are doing wrong are

•· Sending incomplete packages (although the seller provided the documents)

•· Sending the package 30 days after an offer was received

•· Having out of state title companies prepare HUD's

•· Failure to communicate with the listing agent

•· Failure to follow up with the mortgage company

•· Failure to follow up with the seller

This makes everyone look bad. Recently, our state passed a law that one must be a "licensed Colorado mortgage broker" to do loan modifications in Colorado. There has also been a lot of talk about being a "licensed Colorado real estate agent or broker" to negotiate short sales. I would encourage agents and brokers to write their local real estate commission to make this an official rule/law in our state.

After talking to companies doing national short sale negotiations I learned that the reason they are preying on others states is because their state is oversaturated with agents that they need to make money in other markets. I also learned that these companies are charging $1000 to do a short sale. This is not a valid reason to be working in a distressed market when a seller is already distressed. Please help in keeping these predator companies out of the marketplace.

Denver Short Sale tips for Short Sales in 2009

kjhomefinder Denver (Key Concepts) — Sat, 03 Jan 2009 14:05:42 -0800

Sadly Obama passed a bill and Litton is no longer paying $1500 for short sale participation.

Good News for Short Sales in 2009 with Litton Loans and Countrywide

Litton Loans Services and Countrywide are now participating in "Home Base Notes" and "Home Saver Systems". This means that you can now call and get updates from anyone who answers the phone. It used to be just the loss mitigation person assigned to a particular file.

Their goal is to decrease REO by 50% in 2009 and increase in short sale by 50% in 2009. Mortgage servicers do not want to file foreclosure and this is good news. I think we will see more of this in the future.

Litton Loan Services is also offering a $1500 success fee to the seller for participating in a short sale instead of foreclosure (kind of like HUD). Countrywide is not offering the $1500 incentive.

Litton Loan Services: 1800-999-8501 ph 1-972-653-6389 fax

Countrywide Home Loans: 1866-880-1232 ph 1888-491-4947 fax

Thank you,

Key Concepts- serving the Colorado short sale market

Learn more about Short Sales in Colorado and how we can help!

www.kjhomefinder.com

Colorado Short Sales

kjhomefinder Denver (Key Concepts) — Fri, 21 Nov 2008 17:55:06 -0800

Denver Foreclosures Market

The foreclosures in Denver are on the rise and will continue rise until 2009. At Key Concepts we have developed systems to effectively fight foreclosure and succeed where others companies have failed. We have several team players working on every short sale transaction to make sure the the short sale is beneficial and less stressful. We have a great short sale system that consists of a sales and marketing team, a negotiation and coordination team, and a field management team if needed. Our success rate is of the highest in Colorado.

With our extensive education in short sales and applied knowledge of foreclosure process we are actually getting short sale approved with in 45-90 days after we submit the initial hardship package to the bank. At Key Concepts, we do not charge any upfront costs and we do not get paid until we have successfully closed your transaction. Please watch out for foreclosure/ Short Sale companies that offer a solution, but also ask for $500 up front file fee. I feel that they charge this because they lose too many short sales and they need the extra money to cover overhead. We are 100% approved at this time (09/01/2008) and stand by helping the homeowner. We are also very well versed in BPOs (Broker Price Opinions) and price properties in favor of all parties. Please see link below as we have been interviewed by the Denver Post.

www.denverpost.com/business/ci_8737773

What is a short sale and how do we get started?

Basically what you are doing in a short sale situation is you are applying to the mortgage company (whom hold your mortgage notes) for a short sale and you do so in the following steps:

1) Your property must be listed by a licensed real estate agent.

2) You have to provide the following documents:

Hardship letter ? include why you are in foreclosure/short sale position and state that you want to avoid bankruptcy
Supporting documentation in reference to hardship letter (if available), divorce, medical, bills, etc.
Completed financial statement- what does your monthly budget look like? How much coming in vs. how much going out.
Last two months pay stubs
Last two years income tax returns
Last two months bank statements
Notarized financial statement if you don´t have pay stubs, tax returns, or bank statements
Copies of current mortgage statement(s)
Any correspondence from attorney regarding foreclosure

Once the short sale package is submitted it is set for review by mortgage holders in their loss mitigation department. They hire a 3rd party BPO (broker price opinion) specialist to determine the actual value of the subject property. Then the first mortgage holder determines what they will allow the second (third lein, etc) mortgage to have. In some cases the first will only allow $1000-$5000 to the second mortgage holder. The file then goes to review and the approval is issued. Once the short sale is approved, we will have a closing/moving date in mind. Our timing gets better every year. We have some that sell in as little as 45 days and some that take 3-4 months. Depends on the bank's short sale process and also the marketplace and foreclosure rates in the given area.

Please note that there are certain guidelines for HUD/FHA loans. Please inquire within.

Learn more about Short Sales in Colorado and how we can help!

www.kjhomefinder.com

The FHA short sale is a tough client

kjhomefinder Denver (Key Concepts) — Mon, 01 Sep 2008 16:58:41 -0700

There are an increasing number of FHA short sales in Colorado. When dealing with an FHA short sale you must qualify/notify the buyer’s agent of the rules regarding the “FHA bail-out”... aka short sale. FHA short sales will take longer to process. Expect an additional 5-10 business days more than the typical short sale. Not only do the banks have to approve the short sale, but the FHA department has to as well. There are 2 HUD documents needed from the sellers and in some cases the seller will have to participate in HUD participation classes before the short sale can be approved. This can delay the approval process if not taken care of at the beginning of the process. Most importantly!!! FHA will not allow the new buyer to receive paid closing costs, down payment assistance, or any contributions of any kind from the selling side. Please notify potential buyers in advance. Buyers cannot write an offer “over” asking price to include the concessions either. Hopefully, HUD will change their rule in the near future as 60% of the buyers in today’s market need to have some closing assistance from the selling side. Especially since the 100% programs are non-existent and some agents are shying away from short sales in general. This limits the amount of potential buyers for this particular client. Getting in the “know” of FHA short sales will help immensely. Check your local title company for upcoming FHA classes and find a title company that has competent short sale personal to answer questions when needed.

The VA Short Sale- What a breath of fresh air

kjhomefinder Denver (Key Concepts) — Thu, 29 May 2008 00:39:57 -0700

The VA Short Sale- What a breath of fresh air

I recently had the easiest short sale of my career. With this particular deal I had two things going for me.

1) The bank was Chase

2) The loan was backed by the VA department.

Chase has very friendly customer service. Their wait time to talk to a rep is minimal and they almost guarantee approval within 30-45 days from submission date (not post date, mind you).

Here is where communication is key. We all know that sellers who are facing foreclosure are bombarded with phone calls and letters. Sometimes these phone calls can amount from 5-15 per week. These phone calls are from banks, debt collectors and attorneys. Let's face it these calls are never pleasant and sellers will forever screen these calls.

It was about 3 weeks into the short sale process when I was alarmed by my seller that the VA department was "blowing up" his answering machine. The words on the machine were "you are going under foreclosures and need to call the VA department right away". My seller was alarmed as if this was the first time he had really come to the realization that he was in fact facing his demise.

None-the-less, he calls me in a panic... "Help!" As a short sale realtor, we get quite a few of these calls and avoiding the caller is not always the best solution. I told him that we could conference the VA department and see what they want and at the very least tell them that we are in the short sale process.

Long story short, the VA rep was the knight in shining armor. He assured us that if the bank did not have an approval letter in 2 weeks then he would take the entire file and process the short sale himself. He made a few calls to Chase Bank and within 2 weeks we had our approval letter.

If you ever have a VA short sale listing be sure to contact your local VA department as soon as you get a valid offer. The VA department is here to help, but they need the seller to cooperate.

This is the most complete list of loss mitigation phone numbers for lenders on the internet.

kjhomefinder Denver (Key Concepts) — Thu, 29 May 2008 00:12:28 -0700

This is the most complete list of loss mitigation phone numbers for lenders yhat I have on the internet. This is a list for brokers and homeowners.

It is sorted in alphabetical order, which is easy enough. If you have some information on your lender or different contact info that we are not privy too or we have a wrong number or web address then please let us know so we can all help each other. The first step to stop foreclosure is to contact your lender and try and obtain a reasonable "loan workout"or repayment plan. The quicker you get the ball rolling, the better chance you have of striking a deal with your lender, so you can save your home and your credit. The hardest call is the first. It only gets easier after that.Time is ticking and it goes by fast when you're behind the infamous 8 ball. As Nike would say, "Just Do It!"

Key Concepts, LLC Serving the Denver Colorado and surrounding Short Sale Market. www.kjhomefinder.com (720) 276-2553

Lender/Servicer Loss Mitigation Phone Numbers & Contact Information:

ABM AMRO Mortgage (800) 783-8900
Web: https://www.mortgage.com/C3/application.busAccredited Home Lenders (877) 683-4466 AMC Mortgage Services (Also handles loans originated by Ameriquest and Argent) (800) 211-6926
1600 McConnor Parkway
Schaumburg, IL 60173
Web: https://www.myamcloan.com/malwebapp/begin.do

American Home Mortgage Corp. (877) 304-3100*

Ameriquest Mortgage (Debt collection - see AMC Mortgage Services) (800) 211-6926

Aurora Loan Services (Debt collection) (800) 550-0508
By Overnight Mail:
601 5th Avenue
Scottsbluff, NE 69361
Attn: Customer Service
By Regular Mail:
P.O. Box 1706
Scottsbluff, NE 69363
E-mail: ccnmail@alservices.com
Web: https://www.alservices.com/Consumer/UI/SSL/Authentication/Login.aspx?ReturnUrl=%2fConsumer%2fUI%2fSSL%2fServ icing%2fDefault.aspx

Avelo Mortgage LLC (866) 992-8356*Bank of America (800) 846-2222BB&T Mortgage (800) 827-3722* AmTrust Bank (aka Ohio Savings Bank) (888) 696-4444

Beneficial (800) 333-5848

Central Pacific Bank (800) 342-8422*

Charter One (800) 234-6002

Chase (800) 548-7912
Loss Mitigation (877) 838-1882 ext 52195 The Number you will be directed to after you give your loan number: (866) 665-7629 (business hours are 11AM-8PM M-TH, 8AM-12PM F)
Chase Home Finance (800) 848-9136 (customer service) (858) 605-2181 (delinquency customer service)
Chase Home Finance-New Jersey (800) 446-8939*Chevy Chase Bank (800) 933-9100*
Web: https://chaseonline.chase.com/chaseonline/logon/sso_logon.jsp?fromLoc=ALL&LOB=COLLogon

Chase Manhattan Mortgage
(800) 446-8939 (Ohio Servicing Center)
(800) 526-0072 (Florida Servicing Center)
(800) 527-3040 x533 (Florida Servicing Center)Chevy Chase Bank (800) 933-9100
Web: https://www.chevychasebank.com/htm/payment.html (Payment Addresses)Citi Financial Mortgage (800) 753-3673 Citimortgage (800) 283-7918

Countrywide (800) 262-4218
Web: https://customers.countrywide.com/se...t_login254.asp

Ditech (800) 852-0656 (800) 449-8582

Downey Financial Corp. (800) 824-6902, ext. 6696

Deutsche Bank National Call Number on Mortgage Statement

EMC (800) 723-3004
P.O. Box 141358
Irving, TX 75014-1358
Web: https://www.emcmortgageservicing.com/ccn/ccnsecurity.asp

EverBank (800) 669-7724 ext. 4730

Equity One (Debt collection) (866) 361-3460

First Horizon Home Loans (800) 489-2966*

Fifth Third Bank (800) 375-1745 Option 3

First Merit Bank (888) 728-9931

Flagstar Bank (800) 968-7700, ext. 9780

Fremont Investment & Loan (866) 484-0291

GMAC Mortgage (800) 850-4622

GreenPoint Mortgage Funding (800) 784-5566, ext. 5383*

Green Tree (877) 816-9125

Homecomings Financial (800) 799-9250

HomeEq Mortgage Servicing ( Debt collection) (866) 822-1471

Household Finance (A HSBC Co.) (800) 333-5848

Household Mortgage (800) 333-4489

HSBC Mortgage (800) 338-6441
Default Resolution Team (if long term problem)
2929 Walden Avenue
Depew, NY 14043
(888) 648-3124 Loss Mit
(732) 352-7519 Fax
Web: http://us.hsbc.com/personal/mortgage/existing/difficulties.asp

Huntington National Bank (800) 323-4695

Indymac Bank (877) 736-5556
C/O Loan Resolution Department
P.O Box 7014
Pasadena, CA 91107
(Monday - Friday 6:15am-7:15pm. (Pacific Time)
Web: https://www.indymacbank.com/contactus/loanResolution.asp

Irwin Mortgage (888) 218-1988
P.O Box 7014
Pasadena, CA 91107
Web: https://www.irwinmortgage.com/wps/portal/!ut/p/cxml/04_Sj9SPykssy0xPLMnMz0vM0Y_QjzKLN4g3sdAvyHZUBAAqwx 9c
E-mail: deliquency.prevention@irwinmortgage.comJames B. Nutter & Company (800) 315-7334Key Bank (800) 422-2442 LaSalle National Bank (800) 783-8900

Litton Loan Servicing (800) 999-8501 or (800) 548-8665
Fax (713) 966-8820
4828 Loop Central Drive
Houston, Texas 77081-2226
Web: https://www.littonloan.com/index.asp

Loss Mitigation Department Hours:
Monday Eastern: 9 a.m. - 7 p.m. Central:8 a.m. - 6 p.m. Mountain:7 a.m. - 5 p.m. Pacific:6 a.m. - 4 p.m.
Tuesday-Thursday Eastern:9 a.m. - 9 p.m. Central:8 a.m. - 8 p.m. Mountain:7 a.m. - 7 p.m. Pacific:6 a.m. - 6 p.m.
Friday Eastern:10 a.m. - 6 p.m. Central:9 a.m. - 5 p.m. Mountain:8 a.m. - 4 p.m. Pacific:7 a.m. - 3 p.m.
Default Counseling Department representatives are also available most weekends on Saturday from 8 a.m. to 12 p.m. and Sunday from 10 a.m. to 2 p.m. (CST).

Midland Mortgage (800) 552-3000 or (800) 654-4566
Web: https://www.mymidlandmortgage.com/MyMortgage/Login/Login.asp

Mortgage Lenders Network (800) 691-0129
E-mail: customerservice@mlnusa.com
Web: http://www.mlnusa.com/customers/info_credithelp.aspMortgage Electronic Registration Systems (MERS) (888) 679-6377National City (800) 367-9305, Ext. 53221 or (800) 523-8654
Attention: Homeowner's Assistance
3232 Newmark Dr.
Miamisburg, Ohio 45342
(8AM-10:30PM ET, Monday - Thursday)
(8AM-5PM ET, Friday)
(8AM-Noon, Saturday)
Web: http://www.nationalcitymortgage.com/service_assistance.asp Nationwide Advantage Mortgage Company (800) 356-3442, ext. 6002*

NationStar Mortgage (888) 850-9398* Press 0 for operator

New Century Financial Now Carrington Mortgage Services (800) 790-9502 or (877) 206-9904
(6:00 a.m. to 7:00 p.m. Pacific Time, Monday - Thursday)
(6:00 a.m. to 6:00 p.m. Pacific Time, Friday)
Web: https://myloan.newcentury.com/webapps/servicing/myloans/index.do

NovaStar Mortgage Loan Resolution Department (888) 743-0774 Non-English: (888) 743-0774, ext. 4523

Ocwen Federal Bank (800) 746-2936 or (877) 596-8560
Web: http://www.ocwencustomers.com/csc_fa.cfm

Attention: Financial Information
12650 Ingenuity Drive
Orlando, Florida 32826
or
Ocwen Financial Corporation
1661 Worthington Rd., Suite 100
West Palm Beach, Florida 33409
Phone: 877-226-2936

For serving Ocwen with legal process, please send to their registered agent:
Corporation Service Company
2711 Centerville Road, Suite 400
Wilmington, DE 19808
Phone: 561-682-8000, x8386

Option One (866) 711-1962 or (888) 275-2648
Web: http://www.oomc.com/servicing/servicing_baifaqs.asp

PHH Mortgage (Formerly Cendant) (800) 257-0460
For borrowers facing possible delinquency: (800) 330-0423*
For borrowers in the foreclosure process: (800) 750-2518
Web:https://www.phhmortgage.com/sso/mq/login.jsp?TYPE=33554433&REALMOID=06-9153316d-cf4d-4425-a5d7-c0b20a7b098d&GUID=&SMAUTHREASON=0&METHOD=GET&SMAGE NTNAME=phhmort-stb&TARGET=$SM$https%3a%2f%2fwww%2ephhmortgage%2ec om%2fhome%2flandscape%3fjpid%3dLogIn%26loginmode%3 dregistered&SMSESSION=NO

ResMae Mortgage Corp. (877) 473-7623, ext. 5944

Saxon (800) 665-7367

Select Portfolio Servicing (888) 818-6032
Fax: (801) 293-3936
Loan Resolution Department
P.O. Box 65250
Salt Lake City, UT 84165-0250
(Monday - Thursday 10:00 a.m. - 10:00 p.m. EST)
(Friday 10:00 a.m. - 7:00 p.m. EST)
(Saturday 9:00 a.m. - 1:00 p.m. EST)
Web: http://www.spservicing.com/services/customer/loanresolution.htm

SkyBank (800) 290-3359

Sun Trust Mortgage (800) 634-7928
PO Box 26149
Richmond, VA 23260-6149
Mail Code RVW 3003Web: https://www.suntrustmortgage.com/generalquestions.asp#

Third Federal Savings (888) 844-7333

US Bank (800) 365-7900

Wachovia Bank of Delaware (866) 642-8608

Washington Mutual (866) 926-8937 or (888) 453-3102 or (800) 478-0036 or (800) 254-3677

Waterfirld Mortgage (800) 957-7245
Fax: (260) 459-5390
c/o Loss Mitigation Dept.
7500 W. Jefferson Blvd.
Fort Wayne, IN 46804
(7 am - 10 pm EST Monday - Thursday)
(7 am - 9 pm EST Fridays)
(8 am - 2 pm EST Saturdays)
E-Mail: saveyourhome@waterfield.com
Web: http://www.waterfield.com/scripts/cgiip.exe/WService=wfg/pub/borrowerservices/delqasst

Wells Fargo (877) 216-8448 or (866) 261-5642 or (800)766-0987 or (800) 678-7986 for payment assistance
Borrower Counseling Services
Monday - Friday 8:00 a.m. - 9:00 p.m., CT
Saturday 9:00 a.m. - 2:00 p.m., CT
Web: https://www.wellsfargo.com/mortgage/account/

Wendover Financial Services Corporation (800) 934-1081 or (800) 436-1022
Web: http://www.wendover.com/borrowers.html

Wilshire Credit Corporation (888) 502-0100
P.O. Box 8517
Portland, OR 97207-8517
From 6 a.m. to 5 p.m. (Pacific time) Monday through Friday
Web: http://www.wfsg.com/borrower/borrower.aspx

*No direct line to the loss mitigation or loan modification department. But we are working on it

Loan Modification & Loan Workout Applications

Chase Loan Modification Application

Option One Loan Modification Application

HSBC Online Loan Modification Application

Stop Foreclosure, Avoid Foreclosure Scams & Get Real Legal Help!- The materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney.

Denver VA Short Sale- a breath of fresh air

kjhomefinder Denver (Key Concepts) — Wed, 21 May 2008 13:05:51 -0700

The VA Short Sale- What a breath of fresh air

I recently had the easiest short sale of my career. With this particular deal I had two things going for me.

1) The bank was Chase

2) The loan was backed by the VA department.

Chase has very friendly customer service. Their wait time to talk to a rep is minimal and they almost guarantee approval within 30-45 days from submission date (not post date, mind you).

It was about 3 weeks into the short sale process when I was alarmed by my seller that the local Denver, Colorado VA department was "blowing up" his answering machine. The words on the machine were "you are going under foreclosures and need to call the Denver VA department right away". My seller was alarmed as if this was the first time he had really come to the realization that he was in fact facing his demise.

If you ever have a VA short sale listing be sure to contact your local VA department as soon as you get a valid offer. The VA department is here to help, but they need the seller to cooperate.

BPO or Bust???

kjhomefinder Denver (Key Concepts) — Tue, 04 Mar 2008 00:07:47 -0800

I have been doing BPOs for 1.5 years now and I have not had much luck getting REOs from them. Only a handful of listings and a mountain of BPOs. My BPO and CMA scores are very high too, but what is the trick?

I have done sooooooooo many BPOs that I could teach a class on them in my sleep. So I was told by my friend Jen one night when I was snoring during a camping trip. She told me to stop snoring and I told her ""to fax my snoring to the MLS and that I would file my snoring with the BPOs before deadline and don't worry."" I woke up and she asked me, "what does MLS and "VPOs" stand for?'

I tell this story because BPOs can take over your life. I have had to do 6 BPOs in one day. We are talking 15 or so hours. So I guess my biggest question is...

Where are the REOs???? Does anybody know? Is anybody willing to share? Are there some companies that offer more REO then others. Which ones have you had luck with? Any recommendations?

Shortly after this blog I was interviewed by the Denver Post. The recommendation was given to them by a client of mine. Thought that i would share it.

http://www.denverpost.com/business/ci_8737773

Foreclosure Tax Relief Applies in Colorado- get informed

kjhomefinder Denver (Key Concepts) — Mon, 03 Mar 2008 22:25:54 -0800

Foreclosure Tax Relief

IR-2007-159, Sept. 17, 2007

WASHINGTON - The Internal Revenue Service unveiled a special new section today on IRS.gov for people who have lost their homes due to foreclosure. The IRS also reassured homeowners that, although mortgage workouts and foreclosures can have tax consequences, special relief provisions can often reduce or eliminate the tax bite for financially strapped borrowers who lose their homes.

The new section of IRS.gov includes a variety of information, including a worksheet designed to help borrowers determine whether any of the foreclosure-related relief provisions apply to them. For those taxpayers who find they owe additional tax, it also includes a form they can use to request a payment agreement with the IRS. . In some cases, eligible taxpayers may qualify to settle their tax debt for less than the full amount due using an offer-in-compromise.

The IRS urges struggling homeowners to consider their options carefully before giving up their homes through foreclosure.

Under the tax law, if the debt wiped out through foreclosure exceeds the value of the property, the difference is normally taxable income. But a special rule allows insolvent borrowers to offset that income to the extent their liabilities exceed their assets.

The IRS cautions that under the law, relief may be limited or unavailable in some situations where, for example, part or all of a home was ever used for business or rented out.

Borrowers whose debt is reduced or eliminated receive a year-end statement (Form 1099-C) from their lender. By law, this form must show the amount of debt forgiven and the fair market value of property given up through foreclosure. Though the winning bid at a foreclosure auction is normally a property's fair market value, it may not necessarily reflect its true value in some cases.

The IRS urges borrowers to check the Form 1099-C carefully. They should notify the lender immediately if any of the information shown on their form is incorrect. Borrowers should pay particular attention to the amount of debt forgiven (Box 2) and the value listed for their home (Box 7).

The IRS also reminds lenders of their obligation to provide accurate information on the Form 1099-C. By law, the lender must send a copy of this form to the IRS. IRS follow-up contacts with taxpayers involved in foreclosure are based largely on the information reported on this form, and whether it conflicts with information provided by the taxpayer on their federal income tax return.

The IRS normally initiates these follow-up contacts by sending the borrower a notice. The tax agency urges borrowers with questions to call the phone number shown on the notice. The IRS also urges borrowers who wind up owing additional tax and are unable to pay it in full to use the installment agreement form, normally included with the notice, to request a payment agreement with the agency.

Questions and Answers on Home Foreclosure and Debt Cancellation

1. What is Cancellation of Debt?

If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.

Here's a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.

2. Is Cancellation of Debt income always taxable?

Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:

Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets. Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.
Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income. The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception.
Non-recourse loans: A non-recourse loan is a loan for which the lender's only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences, as discussed in Question 3 below.

3. I lost my home through foreclosure. Are there tax consequences?

There are two possible consequences you must consider:

Taxable cancellation of debt income. (Note: As stated above, cancellation of debt income is not taxable in the case of non-recourse loans.)
A reportable gain from the disposition of the home (because foreclosures are treated like sales for tax purposes). (Note: Often some or all of the gain from the sale of a personal residence qualifies for exclusion from income.)

Use the following steps to compute the income to be reported from a foreclosure:

Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section. You have no income from cancellation of debt.)

1. Enter the total amount of the debt immediately prior to the foreclosure.___________

2. Enter the fair market value of the property from Form 1099-C, box 7. ___________

3. Subtract line 2 from line 1.If less than zero, enter zero.___________

The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.

Step 2 - Figuring Gain from Foreclosure

4. Enter the fair market value of the property foreclosed. For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure

5. Enter your adjusted basis in the property. (Usually your purchase price plus the cost of any major improvements.)

6. Subtract line 5 from line 4. If less than zero, enter zero.

The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.

4. I lost money on the foreclosure of my home. Can I claim a loss on my tax return?

No. Losses from the sale or foreclosure of personal property are not deductible.

5. Can you provide examples?

A borrower bought a home in August 2005 and lived in it until it was taken through foreclosure in September 2007. The original purchase price was $170,000, the home is worth $200,000 at foreclosure, and the mortgage debt canceled at foreclosure is $220,000. At the time of the foreclosure, the borrower is insolvent, with liabilities (mortgage, credit cards, car loans and other debts) totaling $250,000 and assets totaling $230,000.

The borrower figures income from the foreclosure as follows:

Use the following steps to compute the income to be reported from a foreclosure:

Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section. You have no income from cancellation of debt.)

1. Enter the total amount of the debt immediately prior to the foreclosure. $220,000

2. Enter the fair market value of the property from Form 1099-C, box 7. $200,000

3. Subtract line 2 from line 1.If less than zero, enter zero. $20,000

Step 2 - Figuring Gain from Foreclosure

4. Enter the fair market value of the property foreclosed. For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure. $200,000

5. Enter your adjusted basis in the property. (Usually your purchase price plus the cost of any major improvements.) $170,000

6. Subtract line 5 from line 4.If less than zero, enter zero. $30,000

In this situation, the borrower has a tax-free home-sale gain of $30,000 ($200,000 minus $170,000), because they owned and lived in their home as a principal residence for at least two years. Ordinarily, the borrower would also have taxable debt-forgiveness income of $20,000 ($220,000 minus $200,000). But since the borrower's liabilities exceed assets by $20,000 ($250,000 minus $230,000) there is no tax on the canceled debt.

Other examples can be found in IRS Publication 544, Sales and Other Dispositions of Assets, under the section "Foreclosures and Repossessions".

6. I don't agree with the information on the Form 1099-C. What should I do?

Contact the lender. The lender should issue a corrected form if the information is determined to be incorrect. Retain all records related to the purchase of your home and all related debt.

7. I received a notice from the IRS on this. What should I do?

The IRS urges borrowers with questions to call the phone number shown on the notice. The IRS also urges borrowers who wind up owing additional tax and are unable to pay it in full to use the installment agreement form, normally included with the notice, to request a payment agreement with the agency.