How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Lev Your Own Question

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22646
Experience:  Taxes, Immigration, Labor Relations
Type Your Tax Question Here...
Lev is online now
A new question is answered every 9 seconds

Bought a second home for my parents to live in since they didnt

Resolved Question:

Bought a second home for my parents to live in since they didn't have the credit to get a loan. House foreclosed on 12/2010; principle balance was $100K; heloc was $50k. Both of these loans were from the same lender, Wells Fargo. The bank sent us a 1099A for 2010 listing the date they took back the house. Listed in the 1099A was the principle balance of the heloc of $50K; Fair Market Value was listed as $140K. Yes, we are liable for the loan. We have not received a 1099C yet and have not report the 1099A on our 2010 tax return. We were served a civil summon for the HELOC a month ago. Right now, we are trying to negotiate a debt settlement with WF. We found out from the foreclosing attorney for WF that they auctioned our house in Dec. 2010 and WF was the highest bidder. They bought the house back for $114K. My questions are:
1. Shouldn't they apply the difference (114K minus the 100K principle on the first) to the heloc?
2. why did WF listed the FMM as 140K when they bought it back for 114K? do we have to file as a capital gain?
3. will we receive a 1099C in the future?
If we negotiate, what should the fair amount be? Also, if they come back at 45k, we will want to go ahead and respond to the civil summons with affirmative defenses. If so, can we raise these issues? Thanks for your help.
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.

LEV :

Hi and welcome to Just Answer!
1. Shouldn't they apply the difference (114K minus the 100K principle on the first) to the heloc?
Yes - whatever left after paying the first mortgage and selling expenses will go toward the HELOC.
2. why did WF listed the FMM as 140K when they bought it back for 114K? do we have to file as a capital gain?
I may not say for sure why the value $140,000 was used. Most likely WF uses appraisal service and that value was a result of appraisal. Yes - you need to report the sale transaction and determine the capital gain = (selling price) - (your adjusted basis). In case of foreclosure in place of a sale price the fair market of the property on the day it was foreclosed should be used. If you think the FMV reported on the form 1099A is incorrect - you may contact the bank and provide your arguments.
3. will we receive a 1099C in the future? If we negotiate, what should the fair amount be?
The form 1099-C is issued only if the balance is forgiven. If the bank will try to collect the balance outstanding - the form 1099-C will not be issued.
If you negotiate with the bank - for instance for partial payment in exchange for forgiveness - the amount forgiven will be reported.
There is no "fair amount" in your situation. The bank will evaluate their ability and costs to collect the balance (considering your income and assets) and might come with an offer.
Also, if they come back at 45k, we will want to go ahead and respond to the civil summons with affirmative defenses.
There is no "issues." Banks often determine a fair market value based on appraisals and the actual sale price comes lower - mainly because only investors come to the auction to purchase for less than the FMV.

Customer:

I'm confused. So can they come after us for the $50K heloc when they listed this amount in 1099A as the principle balance outstanding and the fair market value as $140K. In other words, can a lender collect the debt and issue a 1099A with a FMV being higher than what was owed? With regard to our answer to the civil summons complaint, should we raise in the affirmative defense what they did with the 14K they received from the sale of the house (114K-110K (principle on the first)? We called WF and no one can answer that question for us. We know that this hasn't been applied to the heloc as WF put in the civil summon the $50K heloc balance. This is important especially since we are trying to come up with a fair debt settlement amount.

LEV :

The form 1099-A reports the foreclosure transaction and a fair market value is determined by appraisal at that time.

LEV :

Debt collection is a separate issue.

LEV :

If the property is sold for $114,000 - that amount minus selling expenses will go to pay off the balance.

LEV :

Whatever will be left from paying off the first mortgage will be used to pay off the heloc.

LEV :

$14k will not be lost - part will be used for selling expenses and part to pay off the heloc.

LEV :

If nothing was applied to heloc - you may raise a question and ask for clarification - but I do not see a reason for the affirmative defense in this situation.

Customer:

Just a few more questions... can we raise a question and for clarification in our answer to the complaint? And, can we also ask a question why they would value a property at a 140K but bought it for $114K? Right now, we found out the house is currently being listed for $129,900. In your experience, is it better to settle? Thanks!

LEV :

You definitely may raise a question but honestly you may not expect anything in your favor.
In a foreclosure homeowners actually get billed for bank costs, such as paying for a bank's lawyers, auction costs, realtor's fees, etc. I am sure the bank will come up with a "good" explanation how the money were spent.

LEV :

As I mentioned - the property was sold "as-is" to investor - who in turn most likely is trying to sell it with a small profit.

LEV :

It is listed at $129,900 - so the investor hopes to sell it for $120,000 and make a quick money. If it will not be sold - they will do renovation and will try to sell for more.

LEV :

All these has no affect on your liability. As you let the property to be foreclosed - you should be prepared for larger costs compare if you sell the property on your own.

LEV :

The bank will evaluate their ability and costs to collect the balance (considering your income and assets) and might come with an offer. So for better negotiation - you need to have low income and none assets that may be garnished.

LEV :

I am sorry if you expected a different answer. There are so many people in similar situations and the bank "knows" what they are doing.

Customer:

Thank you for the great answers. WF did ask for our last months' bank statements, 2 recent pay stubs, a list of our monthly expenditures, and last year's tax return to determine whether they will accept an offer of 20K. My last question to you is, our income is 9900 per month but our expenses are 12000+ per month (and we can document these expenses). We have no savings or stocks. My husband does have a retirement plan but doesnt allow him to withdraw until he quits or leave the company or until he's 59 1/2. He's only 49. There are no exceptions that allow him to take money out under this plan. In your experience, do banks take the income minus the expenditures (with NO savings) into consideration? And, this will be my last question. Also, can I come back at another time if I have another question? Thanks so much!

LEV :

Do not provide information about retirement plans - these generally may not be garnished.
You expenses are excluded that are to cover basis living expenses and some obligations - such as mortgage, credit card payments, etc.
I may not say for sure what exactly the bank will or will not consider...
You might need to have an attorney helping you in negotiation. I suggest not to send any information before you consult with an attorney.

Yes - you are welcome back - please bookmark this page - so you will easily find it.

Customer:

Ok, thanks!

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22646
Experience: Taxes, Immigration, Labor Relations
Lev and 3 other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.