Foreclosure Business: Internal Revenue Service Offers Information Services On Foreclosures

September 25th, 2007

The unforeseen waves of foreclosure that has been lashing all corners of the country has taken jumbo proportions causing disbalances in the entire socio-economic structure. The crisis has not been contained within the borrower-lender zone but has spilled onto Wall Street and subsequently the international markets. Big mortgage firms are closing shop. There is credit crunch. Loans are not available. Thousands of houses are being auctioned but there are not enough buyers. It all started with the sub-prime mortgage market going sour. The floating rates ballooned up. The borrowers just could not manage the exorbitant new rates. Coupled with this factor of increased interest were the usual headaches of unemployment, illness and divorce.

Internal Revenue Service has currently opened a special section on its website providing information about foreclosures. Many are not as yet aware that although mortgage negotiations regarding foreclosures carry a tax tag with it there are also special relief clauses, which often lessens the tax load. Sometimes it can be totally cancelled and waived.

The website (irs.gov) includes a worksheet with the help of which borrowers can avail of any of the related relief measures applicable to their foreclosure muddle. There is a special form for those who have to pay an additional tax. The form is a request for payment agreement with Internal Revenue Service. Often taxpayers may be able to come to a settlement in which the amount to be paid as taxes is cut down to half.

In a negotiation between lender and borrower if the value of the property is calculated to be less than the debt amount the difference or the amount saved is taken to be income and therefore taxable. But as per special rules the insolvent borrowers are allowed to show that their liabilities exceed their assets and therefore they are entitled to tax relief. But to qualify for this tax relief, the property under dispute has to be totally residential. If it is even partially used for business or rental purpose then the relief clause is inapplicable.

Borrowers should also take note that those whose debt has been reduced or totally waived should get a statement at the end of the year (form 1099-C) from the lender clearly stating the amount of the debt and the current and correct market rate of the property that has been foregone due to foreclosure.