If a bank cancels or forgives debt from a mortgage, a Form 1099 is automatically sent to you to report the Cancellation of Debt as income. For those not familiar with a Form 1099, it is used to report income that is not earned from wages, salaries or tips. There are multiple versions of the 1099. The Form 1099-C is used to report the Cancellation of Debt. Unfortunately, the Cancellation of Debt reported on a 1099 must be included on a tax return as income on which you must pay taxes.
Since 2007, the Mortgage Forgiveness Act of 2007 (which will expire at the end of 2012) has allowed cancelled debt from a foreclosure to be excluded as income if your primary residence secured the mortgage. However, banks often do not allow the debt left over from a foreclosure to be simple written off in this manner. Instead, the bank chooses to pursue the borrower personally, after the foreclosure has ended and the home sold, for the remaining balance of the mortgage.
It is important to discuss this possibility with an attorney to make sure this does not happen to you. A Florida Foreclosure Defense Attorney can help protect you from being pursued for the remaining balance of your mortgage as well as help you prepare for the future. Contact a Jacksonville Foreclosure Defense Attorney for a complimentary initial review of your situation before its too late.
