I have a client that had a rental that was foreclosed. He has no documentation and received no 1099-A or 1099-C. He doesn't know if loan was recourse or non-recourse. He seems to be telling the truth about documentation. I advised him to look at his original loan documents to determine if his loan was recourse or non-recourse, but loan documents are unclear. I have three questions: 1. How would other tax preparers handle?? 2. Aren't the banks required to file 1099-A's on forclosed homes? 3. Also, how do you determine if a loan is recourse or non-recourse? If loan document states the home is security interest, does that mean bank is agreeing to just the security of the home for the loan?
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Random thoughts....
Not entirely sure in your situation but here are some thoughts I would have:
1) Have your client call the bank and ASK if they have sent something out to him/her; most mortgages are recourse debt. Could the property have been conveyed to the lender in lieu of foreclosure?
2) The bank is not going to know whether they have a gain/loss on the property until the foreclosure sale. Did this take place before the end of 2008? The foreclosure process might have started in '08 but might not have been completed before year end.
3) Have the client drop off a copy of the documents they signed at closing and review those. Most clients just automatically say "I don't know" when asked questions regarding recourse/non-recourse debt. Most loan customers just blindly sign the closing documents.
Good luck!
Mo -
Seems like a prime candidate for an extension. They don't have the proper info, don't know where or how to get it, and don't seem all that interested in helping you out. You need breathing room if you want to get it right.
I had one come in like this early in the season. Said he dind't get any paperwork - just gave the rental property back to the bank. I ran a couple of quick scenarios and told him he had something between a $1K refund and an $8K liability but I didn't know which. He went back to the bank and got copies of the paperwork he had thrown away in disgust at the time of the foreclosure.Last edited by JohnH; 04-12-2009, 05:39 PM."The only function of economic forecasting is to make astrology look respectful" - John Kenneth GalbraithComment
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1. Form 4868.
2. There might be something more going on here, which should be cleared up before the return is filed.
3. Having the taxpayer get additional information from the bank probably.Comment
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Foreclosure
Thanks for the input - I will tell client need to file extension until we get more info. Taxpayer also had another piece of property (his primary residence) that was sold as a short-sale. He did bring the closing statement for the short-sale. But what is odd to me is that as of the end of 2007 the loan balance was $537,726 on a first and $69,039 on a second; however the closing statement shows a payoff of the loan for only $387,108 for the first and nothing for the second loan. Does that mean that $387,108 was all the bank could get based on the short sale and the balance of $150,618 plus the $69,039 could be considered cancelled debt? What a mess........Comment
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Wowl. Make my guy with a possible $8K liability look like a drop in the bucket. You need lots of documentation and time to get things in order."The only function of economic forecasting is to make astrology look respectful" - John Kenneth GalbraithComment
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