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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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We are filling out a form 982. My wifes home was purchased

Customer Question

We are filling out a form 982. My wifes home was purchased for 160000 and she had a second for 80000. She foreclosed and the 1st took the home to auction. The second has been trying to collect but has now sent us a 1099-c for 78k. We dont understand the H&R block questions on their form 982. Question (1) Was this discharge a result of a sale of foreclosure? Yes or No. We dont know why it was discharged as it's been 7 years since it was sold at an auction.
Question (2) If her total mortgage debt was 240k, what is her total acquisition debt?
Submitted: 11 months ago.
Category: Tax
Expert:  Lev replied 11 months ago.

Question (1) Was this discharge a result of a sale of foreclosure? Yes or No. We dont know why it was discharged as it's been 7 years since it was sold at an auction.

If the property was sold or otherwise disposed - there is NO collateral for the debt - and debt becomes unsecured - as for instance a credit card debt. So your answer is NO.
Question (2) If her total mortgage debt was 240k, what is her total acquisition debt?

That is not related to your situation as there is no collateral.

That is not a home acquisition debt anymore after the property was foreclosed.

If you are looking for options to exclude the forgiven debt - you would need to try insolvency exemption.

Customer: replied 11 months ago.
The debt in question was indeed a secured loan. It held collateral against the home
Expert:  Lev replied 11 months ago.

That is correct. It WAS secured BEFORE the property was foreclosed 7 years ago...

But after that - it was not secured.

If the debt was not cancelled at the time of foreclosure - it became unsecured.

Customer: replied 11 months ago.
Ok, so what would my wife's fair market value of her assets owned be, at the time of discharge? $0?
Expert:  Lev replied 11 months ago.

That is something your wife should know...

The date the debt was forgiven - is that date stated on form 1099C.

As you are in California which is a the community property state - all jointly owned assets are divided equally.

Customer: replied 11 months ago.
If the first mortgage took the home to auction and the second mortgage didn't recoup anything from them, why is that my wife's debt if the second was secured against the home in the first place. It seems as if the second should have laid claim before the house was sold.
Expert:  Lev replied 11 months ago.

That is how it was originated in the first place.over the second

As a second mortgage - it had a home as a collateral, however - the first mortgage takes priority over the second mortgage - so - if the first mortgage is paid in full - whatever left is used to pay the second mortgage - and if not paid in full - the rest becomes unsecured loan.

You may want to look over the following article about relation between these two types of mortgages.

http://homeguides.sfgate.com/first-mortgage-vs-second-mortgage-59280.html

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