A lender files a 1099-C with the IRS when they release the debtor from liability or otherwise waive a borrower’s deficiency judgment. If you received a 1099-C from your mortgage company, then you should not owe a deficiency judgment on the corresponding debt. But when it comes to Florida foreclosures, things can get a bit convoluted as foreclosure actions are typically filed by the truckload, in a factory-like settings; an environment in which unfortunate blunders are easily made.
A 1099-C is most often seen in short sales or a deed in lieu of foreclosure—both are instances in which the lender typically cancels the balance remaining on the debt. In a short sale, for example, your lender agrees to settle the debt on the property for less than what they’re owed. However, debt relief (with few exceptions) is considered taxable income and must be reported to the IRS. Come tax season, your lender is allowed to write off your settlement as a loss, so once the short sale transaction is complete, your lender will send you a 1099-C affirming the amount written-off in the settlement. You would then report that amount as income when filing your tax return for the tax year in which that debt was settled. That should, for all intents and purposes, be the end of it.
In essence the 1099-C you received from your lender is an agreement which states your mortgage company will not pursue the remaining balance on your debt. If you have documentation stating your deficiency was waived, then you have a solid defense against collection efforts. It is very plausible that your lender simply made a mistake. Nevertheless it is important to take action and contact an experienced foreclosure attorney immediately in order to guarantee your interests are being protected.
This post was written by Stephen Hachey. Follow Stephen on Google