San Diego short sale

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Thursday, September 25, 2008

1099c, canceled debt, release from a deficiency

In a short sale will you be released from a deficiency if you get a 1099-c ?

Here is what the Irs has to say about the 1099c. 

Instructions for Forms 1099-A and 1099-C (2008)
When Is a Debt Canceled

A debt is canceled on the date an identifiable event occurs. An identifiable event is:

1.

A discharge in bankruptcy under Title 11 of the U.S. Code for business or investment debt (see Exceptions on this page).
2.

A cancellation or extinguishment making the debt unenforceable in a receivership, foreclosure, or similar federal or state court proceeding.
3.

A cancellation or extinguishment when the statute of limitations for collecting the debt expires, or when the statutory period for filing a claim or beginning a deficiency judgment proceeding expires. Expiration of the statute of limitations is an identifiable event only when a debtor's affirmative statute of limitations defense is upheld in a final judgment or decision of a court and the appeal period has expired.
4.

A cancellation or extinguishment when the creditor elects foreclosure remedies that by law end or bar the creditor's right to collect the debt. This event applies to a mortgage lender or holder who is barred by local law from pursuing debt collection after a “power of sale” in the mortgage or deed of trust is exercised.
5.

A cancellation or extinguishment due to a probate or similar proceeding.
6.

A discharge of indebtedness under an agreement between the creditor and the debtor to cancel the debt at less than full consideration.
7.

A discharge of indebtedness because of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. A creditor's defined policy can be in writing or an established business practice of the creditor. A creditor's practice to stop collection activity and abandon a debt when a particular nonpayment period expires is a defined policy.
8.

The expiration of nonpayment testing period. This event occurs when the creditor has not received a payment on the debt during the testing period. The testing period is a 36-month period ending on December 31 plus any time when the creditor was precluded from collection activity by a stay in bankruptcy or similar bar under state or local law. The creditor can rebut the occurrence of this identifiable event if:
1.

The creditor (or a third-party collection agency) has engaged in significant bona fide collection activity during the 12-month period ending on December 31 or
2.

Facts and circumstances that exist on January 31 following the end of the 36-month period indicate that the debt was not canceled.

Significant bona fide collection activity does not include nominal or ministerial collection action, such as an automated mailing. Facts and circumstances indicating that a debt was not canceled include the existence of a lien relating to the debt (up to the value of the security) or the sale or packaging for sale of the debt by the creditor.

Exceptions

You are not required to report on Form 1099-C the following:

1.

Certain bankruptcies. You are not required to report a debt discharged in bankruptcy unless you know from information included in your books and records that the debt was incurred for business or investment purposes. If you are required to report a business or investment debt discharged in bankruptcy, report it for the later of:
1.

The year in which the amount of discharged debt first can be determined or
2.

The year in which the debt is discharged in bankruptcy.

A debt is incurred for business if it is incurred in connection with the conduct of any trade or business other than the trade or business of performing services as an employee. A debt is incurred for investment if it is incurred to purchase property held for investment (as defined in section 163(d)(5)).
2.

Interest. You are not required to report interest. However, if you choose to report interest as part of the canceled debt in box 2, you must show the interest separately in box 3.
3.

Nonprincipal amounts. Nonprincipal amounts include penalties, fines, fees, and administrative costs. For a lending transaction, you are not required to report any amount other than stated principal. A lending transaction occurs when a lender loans money to, or makes advances on behalf of, a borrower (including revolving credit and lines of credit). For a nonlending transaction, nonprincipal amounts are included in the debt. However, until further guidance is issued, no penalties will be imposed for failure to report these amounts in nonlending transactions.
4.

Foreign debtors. Until further guidance is issued, no penalty will apply if a financial institution does not file Form 1099-C for a debt canceled by its foreign branch or foreign office for a foreign debtor provided all the following apply:
1.

The financial institution is engaged in the active conduct of a banking or similar business outside the United States.
2.

The branch or office is a permanent place of business that is regularly maintained, occupied, and used to carry on a banking or similar financial business.
3.

The business is conducted by at least one employee of the branch or office who is regularly in attendance at the place of business during normal working hours.
4.

The indebtedness is extended outside the United States by the branch or office in connection with that trade or business.
5.

The financial institution does not know or have reason to know that the debtor is a U.S. person.
5.

Related parties. Generally, a creditor is not required to file Form 1099-C for the deemed cancellation of a debt that occurs when the creditor acquires the debt of a related debtor, becomes related to the debtor, or transfers the debt to another creditor related to the debtor. However, if the transfer to a related party by the creditor was for the purpose of avoiding the Form 1099-C requirements, Form 1099-C is required. See section 108(e)(4).
6.

Release of a debtor. You are not required to file Form 1099-C if you release one of the debtors on a debt as long as the remaining debtors are liable for the full unpaid amount.
7.

Guarantor or surety. You are not required to file Form 1099-C for a guarantor or surety. A guarantor is not a debtor for purposes of filing Form 1099-C even if demand for payment is made to the guarantor.
8.

Seller financing. Organizations whose principal trade or business is the sale of non-financial goods or non-financial services, and who extend credit to customers in connection with the purchase of those non-financial goods and non-financial services, are not considered to have a significant trade or business of lending money, with respect to the credit extended in connection with the purchase of those goods or services, for reporting discharge of indebtedness on Form 1099-C. See Regulations section 1.6050P-2(c). But the reporting applies if a separate financing subsidiary of the retailer extends the credit to the retailer's customers.

Multiple Debtors

For debts of $10,000 or more incurred after 1994 that involve debtors who are jointly and severally liable for the debt, you must report the entire amount of the canceled debt on each debtor's Form 1099-C. Multiple debtors are jointly and severally liable for a debt if there is no clear and convincing evidence to the contrary. If it can be shown that joint and several liability does not exist, a Form 1099-C is required for each debtor for whom you canceled a debt of $600 or more.

For debts incurred before 1995 and for debts of less than $10,000 incurred after 1994, you must file Form 1099-C only for the primary (or first-named) debtor.

If you know or have reason to know that the multiple debtors were husband and wife who were living at the same address when the debt was incurred, and you have no information that these circumstances have changed, you may file only one Form 1099-C.
Recordkeeping

If you are required to file Form 1099-C, you must retain a copy of that form or be able to reconstruct the data for at least 4 years from the due date of the return.
Requesting TINs

You must make a reasonable effort to obtain the correct name and taxpayer identification number (TIN) of the person whose debt was canceled. You may obtain the TIN when the debt is incurred. If you do not obtain the TIN before the debt is canceled, you must request the debtor's TIN. Your request must clearly notify the debtor that the IRS requires the debtor to furnish its TIN and that failure to furnish such TIN subjects the debtor to a $50 penalty imposed by the IRS. You may use Form W-9, Request for Taxpayer Identification Number and Certification, to request the TIN. However, a debtor is not required to certify his or her TIN under penalties of perjury.
Statements to Debtors

If you are required to file Form 1099-C, you must provide a statement to the debtor. Furnish a copy of Form 1099-C or an acceptable substitute statement to each debtor. In the 2008 General Instructions for Forms 1099, 1098, 5498, and W-2G, see:

*

Part M for more information about the requirement to furnish a statement to the debtor and
*

Part J for specific procedures to complete Form 1099-C for debtors in bankruptcy.

Account Number

The account number is required if you have multiple accounts for a debtor for whom you are filing more than one Form 1099-C. Additionally, the IRS encourages you to designate an account number for all Forms 1099-C that you file. See part L in the 2008 General Instructions for Forms 1099, 1098, 5498, and W-2G.
Box 1. Date Canceled

Enter the date the debt was canceled. See When Is a Debt Canceled on page 3.
Box 2. Amount of Debt Canceled

Enter the amount of the canceled debt. See Debt Defined on page 3 and Exceptions on page 3. Do not include any amount the lender receives in satisfaction of the debt by means of a settlement agreement, foreclosure sale, etc.
Box 3. Interest if Included in Box 2

Enter any interest you included in the canceled debt in box 2. You are not required to report interest in box 2. But if you do, you also must report it in box 3.
Box 4. Reserved

Box 5. Debt Description

Enter a description of the origin of the debt, such as student loan, mortgage, or credit card expenditure. Be as specific as possible. If you are filing a combined Form 1099-C and 1099-A, include a description of the property.
Box 6. Check for Bankruptcy

Check the box if you are reporting a debt discharged in bankruptcy.
Box 7. Fair Market Value (FMV) of Property

If you are filing a combined Form 1099-C and 1099-A for a foreclosure, execution, or similar sale, enter the FMV of the property. Generally, the gross foreclosure bid price is considered to be the FMV. If an abandonment or voluntary conveyance to the lender in lieu of foreclosure occurred, enter the



short sales and 1099s

Thursday, September 11, 2008

Foreclosure still rising

Delinquencies and Foreclosures Increase in Latest MBA National Delinquency Survey
WASHINGTON, D.C. (September 5, 2008) — The delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 6.41 percent of all loans outstanding at the end of the second quarter of 2008, up six basis points from the first quarter of 2008, and up 129 basis points from one year ago on a seasonally adjusted basis, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey.

The delinquency rate includes loans that are at least one payment past due but does not include loans somewhere in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the second quarter was 2.75 percent, an increase of 28 basis points from the first quarter of 2008 and 135 basis points from one year ago.

Monday, September 8, 2008

How will the Fannie and Freddie take over effect the housing market

US government takes on big role in mortgage market: Financial News - Yahoo! Finance
Analysts were split on how much the takeover could eventually cost taxpayers although they all agreed the up-front costs will be substantial, possibly hitting $100 billion as the Treasury is called upon to bolster the capital cushions at both institutions.

However, if the plan does the trick of stabilizing the housing market and home prices stop falling and rebound, then the assets of both Fannie and Freddie should rise in value and the government should be able to sell off the companies and recoup its investments.

But it could take a long time to work through that process given all the headwinds facing housing at the moment from the plunge in home prices to soaring defaults on mortgages which are dumping more homes on an already glutted market. The weak economy has pushed unemployment to a five-year high of 6.1 percent, further reducing demand for homes.

"I think the government will end up having to put in far more money then they are planning right now (given all the problems facing housing) but the important thing is the agencies have been taken over by the government," said Sung Won Sohn, an economics professor at California State University Channel Islands. "That means there will be less panic in financial markets."
--

The real question is how will this effect the cost of larger home loans. Will it be easier or tougher to qualify for homes? The future of housing prices in San Diego may be known in the next few weeks.

Monday, September 1, 2008

Home Prices in San Diego Down 24% compared to second quarter 2007

Click on the link below to see how San Diego home prices fared relative to other markets.

Housing market shows a hint of hope - USATODAY.com
Other data released Tuesday also show the market remains weak. The Office of Federal Housing Enterprise Oversight reported that home prices nationally were 1.4% lower in the April-June quarter of 2008 vs. the preceding quarter, and down 4.8% from a year earlier. OFHEO analyzes prices paid nationwide for residences financed through Freddie Mac and Fannie Mae.

In July, according to a report from the U.S. Department of Commerce, new homes sold at a seasonally adjusted annual rate of 515,000. That rate is up 2.4% from June but is 35% below the July 2007 sales rate.

What will happen to the prices of San Diego Homes if Fannie and Freedie cease to exist

Barron's Online
The Endgame Nears For Fannie and Freddie
By JONATHAN R. LAING
The almost inevitable government recapitalization of Fannie Mae and Freddie Mac will likely wipe out investors—and management.

IT MAY BE CURTAINS SOON FOR THE MANAGEMENTS and shareholders of beleaguered housing giants Fannie Mae and Freddie Mac . It is growing increasingly likely that the Treasury will recapitalize Fannie and Freddie in the months ahead on the taxpayer's dime, availing itself of powers granted it under the new housing bill signed into law last month. Such a move almost certainly would wipe out existing holders of the agencies' common stock, with preferred shareholders and even holders of the two entities' $19 billion of subordinated debt also suffering losses. Barron's first raised the possibility of a government takeover of Fannie and Freddie in a March 10 cover story, "Is Fannie Mae Toast?"