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.