How to Apply for Foreclosure Forgiveness
- 1). Understand that the lender is not required to forgive any of the debt. You cannot ask the lender to forgive your mortgage. In states where lenders can obtain a deficiency judgment against you, they may be less likely to forgive any of the debt.
- 2). Check the mail for a 1099-C Cancellation of Debt form. Lenders who forgive debt are required to mail you a form stating the amount of debt they are forgiving.
- 3). Locate the amount of debt that has been forgiven by the lender. The amount of mortgage debt canceled is shown in box 2 of the 1099-C form.
- 4). Exercise your rights under the Mortgage Forgiveness Debt Relief Act of 2007. You can exclude the canceled debt from your income if the home was your primary residence or if you were insolvent immediately before the debt was discharged -- meaning that your liabilities exceed your assets. To qualify, your debt must have been forgiven in the years 2007 through 2012. The act is set to expire after 2012, unless Congress renews.
- 5). Complete and attach tax form 982: Reduction of Tax Attributes Due to Discharge of Indebtedness. The form is required to exclude your canceled mortgage debt. You will be asked to provide the total amount of canceled debt and the reason qualifying you for the exclusion. The form must be submitted with your federal tax return.
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