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Old 02-06-2014, 11:18 PM
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Question on taxability of Independent Foreclosure Review Payment

Hello - Last year I received a payment of $3750.00 as a result of an agreement between federal banking regulators and my old mortgage servicer in connection with an enforcement action related to deficient mortgage servicing and foreclosure services (www.independentforeclosurereview.com for details). I was under the impression that since I lost my home this payment would not be taxable, but I just received a 1099-MISC for the $3750... it's a class action settlement but to recover for losses - do I have to pay taxes on this? I live in New Jersey, if that matters.

I am concerned because I was unemployed all year last year (and am still unfortunately so) with the only income being 6 months of unemployment (of which I had taxes withheld) and this payment. I am hoping I don't have to come up with extra money to pay taxes on it, but thought I would ask you as a professional to get an idea. If it is taxable, how much should I expect to have to pay?

Many thanks for your advice.



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Old 02-08-2014, 01:42 AM
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Originally Posted by confusedinnj View Post


#1;Hello - Last year I received a payment of $3750.00 as a result of an agreement between federal banking regulators and my old mortgage servicer in connection with an enforcement action related to deficient mortgage servicing and foreclosure services (www.independentforeclosurereview.com for details). I was under the impression that since I lost my home this payment would not be taxable, but I just received a 1099-MISC for the $3750... it's a class action settlement but to recover for losses - do I have to pay taxes on this?

#2; I live in New Jersey, if that matters.

#3;I am concerned because I was unemployed all year last year (and am still unfortunately so) with the only income being 6 months of unemployment (of which I had taxes withheld) and this payment. I am hoping I don't have to come up with extra money to pay taxes on it, but thought I would ask you as a professional to get an idea. If it is taxable, how much should I expect to have to pay?

Many thanks for your advice.
#1; The payment is considered taxable income for state and federal income tax purposes and come tax time,. For checks in an amount of $600 or greater, the Paying Agent will report such payments as income to the IRS and your state agency and to you, a borrower, on a Form 1099 MISC. this is not canceled debt, so the Mortgage Debt Forgiveness Tax Relief Act exclusion that allows many taxpayers to exclude canceled or forgiven debt from their income does not apply.


#2;I do not think so.

#3;Then I assume that you are single filer, then you d be subject to refund as you have no other income except the 1099 income, $3,750. Also your tax liability reported on 1040 line 44 is less than the amount reported on line 62. Some payments may have already been issued with taxes withheld .UNLESS you return tax information on the Form W-9 as requested by the Paying Agent, then the Paying Agent is required by law to automatically withhold certain amount. These amounts will be subtracted from your payment and noted in the letter enclosed with the check. The Paying Agent will report such amounts to the IRS and to you on a Form 1099 MISC. The Paying Agent will deposit the amounts withheld on the your behalf with the IRS or the appropriate state agency.



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