Update: 1/31/2010: House sold, I’m now living in an apartment. Started getting automated collection calls last week from Green Tree which I did not answer. I sent them an email instead. They responded by calling me and saying their system does not allow them to send email. Well, they did send me email in the past. On the phone Green Tree says they will keep trying to collect even though the CA law is against them. The investor may not send me a 1099 form for up to 11 years, so says the Green Tree rep. They are hoping a law will change so I’ll then be responsible to pay them. They recommend I get a lawyer to send them a cease and desist letter. This would lead to a lawsuit. According to my past attorney, I would win. I am in the process of consulting another attorney now to be sure that a lawsuit is the right thing to do to get this case closed. I haven’t gotten a 1099 form from either the 1st or 2nd yet. I haven’t started doing my taxes. Will let you all know how that goes.
Update: 10/6/2009: I can’t believe it. Green Tree accepted the short payoff of $3,000 for the $60,000 HELOC. Totally unexpected. My B of A short sale is moving forward after all.
Update: 9/26/2009: The short sale, I’m told, could still fall through 4 days before the close of escrow because the 2nd loan was sold to another holder who is not aware that they hold the loan, thus, they can’t acknowledge that they accept the short pay off. Last little trick by the bank?
Update 9/10/2009: GREAT NEWS! A large CPA firm (which will charge me about $400 to do my taxes for 2009) has done some research and determined that, in my case, I will not owe any additional California taxes due to my short sale, nor will I have capital gains because I’ve lived here for several years and because mine is a non-recourse debt. I was told that even with California not conforming to the Federal Mortgage Debt Relief Act of 2007 in the year of my short sale (2009), the 121 exclusion (up to $250,000 for a single person) would apply.
Really? I sent the CPA this link (http://www.ftb.ca.gov/professionals/taxnews/2009/July/Article_9.shtml) and he is double checking. I need to be certain about this!
Answer: The CPA says, regarding the information at the above link, nothing there contradicts his certainty that while California does not conform to the Federal Mortgage Debt Act after Jan 2009, California does still conform to section 121. I’ll owe no additional CA taxes or Federal taxes due to my short sale!
I’ll only have the hit to my credit (see below and comments posted.)
Also, since I have not been paying interest this year, I reduced by withholdings to zero so more will be taken from my paycheck for taxes.
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I may not correctly have understood the tax consequences of a “short sale” of the home I purchased years ago for $300K. (100% financing, first: $240K pay option ARM + second: $60K HELOC) I’ve learned that when/if I get approval for my short sale for $170K I will definitely get a 1099 form from the investor. No problem .. I thought: The Mortgage Debt Relief Act of 2007 would protect me from owing federal taxes, right? However, the same is not true in 2009 of California taxes.
Governor Schwartzenegger signed S.B. 1055, California partial conformity legislation for mortgage debt forgiveness, on September 25. The law is intended to make California law closer to federal legislation enacted in the Mortgage Foregiveness Debt Relief Act of 2007. … California would allow the exclusion for 2007 and 2008. The federal exclusion is also allowed for 2009 through 2012. – shortsale
I will be potentially taxed by the state as if I made an extra $130,000 in 2009. Of course, this is complete bs. Where is my $130,000? I don’t see it. I don’t have it. It doesn’t exist. Debt cancellation income is not a gain when you walk away with nothing. I have been ripped off, and now it seems the gouging will continue for years?
My mind always considers the worst options. I think it is a defense mechanism. If I revolt and refuse to pay my California taxes, will they throw me in prison? Will I need to hide from the law for years in a cave in the woods and eat bugs? Humor is my other defense mechanism.
Not paying may not even be an option. In addition to the 8% pay cut due to budget problems this year, I may have my wages garnished by the state to pay the huge taxes I’ll owe from some invisible gain that was not a real gain. It makes no sense. The bank ripped me off by taking advantage of my lack of understanding of the Interest Only Pay Option Adjustable Rate Morgage loan.
It was a scam. Those people should be in jail. My credit should be fixed. I should owe nothing. I’ve already lost three years of interest only payments. How can I OWE money for getting ripped off by a predatory lender?
Some sites are posting wrong info about the CA tax consequences for 2009. I need to find out for certain. A foreclosure may actually be the better option. I have an appointment with a tax attorney this Tuesday. Questions I want nailed down:
- Am I exposed to a deficiency judgment to the first lender after a foreclosure, short sale or deed in lieu?
- Am I exposed to a deficiency judgment to the second lender (HELOC) after a foreclosure, short sale or deed in lieu?
- Is my loan a non-recourse loan according to the law?
- To what degree am I protected by the Mortgage Debt Relief Act of 2007?
- Will I owe federal taxes on either Cancellation of Debt or Capital Gains? How much?
- WIll I owe state taxes? How much?
- How will my credit be damaged by a foreclosure as compared to a short sale and how can I mitigate the damage?
- Can the attorney negotiate with the bank to report the sale “paid as agreed” to the credit reporting agencies rather than “account closed, not paid in full.”?
- Should I try a fourth loan modification even though the lender won’t reduce the principle and I’ve already been told I don’t qualify?
- How can I utilize the full force of California anti–deficiency protections?
- Can I sue for predatory lending and get my credit fixed?
- Should I request the lender produce proof of ownership of the loans?
- Should I ask BofA to prove that B of A or Countrywide made the proper lending disclosures?
If anyone else has been 1099’ed by B of A in California in 2009 after a short sale, I’d love to hear what happened for you. If you are in the same boat or just curious, stay tuned as the story unfolds.
Acceptance letter or short sale from B of A dated 8/25/ 2009:
“BAC Home Loans Servicing, LP and/or its Investors and/or insurers have agreed to accept a short payoff involving the above referenced property and the referenced account(s). … BAC Home Loans Servicing, LP and/or its investors may persue a deficiency judgement for the difference in the payment received and the total balanced due, unless agreed otherwise or prohibited by law, if the short sale cloases on the loan refernced above. “
They attorney who reviewed my loan documents says Cal Code Civ Proc 580b (2007) prohibits them from going after a deficiency judgment.
“No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust, or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser.
Where both a chattel mortgage and a deed of trust or mortgage have been given to secure payment of the balance of the combined purchase price of both real and personal property, no deficiency judgment shall lie at any time under any one thereof if no deficiency judgment would lie under the deed of trust or mortgage on the real property or estate for years therein. “