Tax Liability is Generated with any Debt Forgiveness
(Short Sale, Modification, Deed-in-Lieu of Foreclosure, Foreclosure Sale)
• Debt Forgiveness is Regarded as Ordinary Income by I.R.S.
• Mortgage Forgiveness Debt Relief Act
-Principal Residence (Owned and Used for 2 Years)
-Principal Residence and Homestead Are Different
-Debt Used to Acquire, Construct, Improve Residence
-Caps $1/2 Million
-Refinance for New Business, Credit Card Debt or Car Not Covered
• IRS Capital Gains Exclusion Does Not Apply
Forgiven Debt is Ordinary Income
• Lender has to Issue IRS Form 1099 by Law
• Bankruptcy Not an Option-Income Tax Not Typically Dischargeable
• If Lender Violates Federal/State Law, Alternative is Litigation Against Lender
• Unlawful Acts by Lender:
-False Credit Reporting
-Predatory Lending
-Mortgage Fraud
-Negligent Underwriting
-Collection Law Violations
-Violations of Servicing Laws
-Fiduciary Duty Issues
