Last year I was hounded by my mortgage company to refinance my home. I had not been late on any payments. I was OK with my payments, not in any type of financial bind etc. I finally relented and listened. They offered to reduce my interest, but the rate wasn’t worth the charges. They came back and offered to cover the appraisal costs, closing costs and reduce the total amount owed as part of a new FHA program. Future discussion on the phone with their rep revealed they wanted my loan which was in good standing to bundle with other loans to sell it, all apart of the “new housing program”. Thought it was a great deal since it lowered my house note about $400.00 per month. In less than a month after signing, they sold my loan to one of the majors that was in the news (TARP Money) going under etc. Started making timely payments to the mortage comapny, no problems etc. I just received a 1099C, which shows the amount of debt cancelled. The house appraised for $209K and they show fair market at $233K during the middle of the housing melt down. All these conversations took place on their phones and each time we spoke I was notified that we were being recorded.
Am I liable for the amount or the taxes on the amount listed as cancelled, when it was an offer by the mortgage company, to entice me to refinance, so they could sell the loan?
I’m afraid that if they issued you a 1099-C you are left with two issues. One is the IRS is going to expect you to pay tax on the forgiven debt. Second is what in the world was the mortgage company trying to do here?
It’s very odd that you were current and in good standing on your mortgage and they eagerly wrote down the balance of your loan and took a voluntary loss on it. Call me skeptical but something was in it for them. Who knows, maybe mortgage insurance paid off and covered the loss for them?
Regardless it looks like the mortgage company has left you in a bad place with a tax bill of probably $5,000 or so on the forgiven debt. At this point with the 1099-C issued you will need to talk to a tax advisor on how to best handle this with the IRS.
The good news is that you’ll be able to make up the amount due with the monthly mortgage savings you’ve received in less than a year.