Independent Foreclosure Review Funds and the 2013 Tax Return

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If you have been following all of the conversations about Independent Foreclosure Review, we are in the midst of a torrent of “checks in the mail” as 4.2 million homeowners are receiving their remuneration (or settlement disbursements) for foreclosures, loan mods, and short sales gone bad (kind of like Girls Gone Wild). Checks can range anywhere from $300 to $125,000—depending upon the severity of the bank’s boo-boo.

Short Sale Expeditor® has received thousands of inquiries as to when individuals will get their checks, how much they will be, how to change the name of the payee, and what to do if the check does not arrive among other things. Since we are not directly involved with the disbursement (we’re just reporting the news, folks), please remember that you and/or your clients should direct all inquiries to Rust Consulting at 1-888-952-9105.

However, despite the fact that we have received countless inquiries about the checks (including many complaints that the checks are far too small), nobody has inquired as to whether the funds are subject to taxation. The answer is “maybe.”

The Independent Foreclosure Review site reminds all recipients of checks that they ought to seek legal and tax advice with respect to taxation. Additionally, here’s a lengthy explanation from the Independent Foreclosure Review website as to whether or not your check or your client’s check is taxable:

In most cases, borrowers will receive a check that represents only a lump sum “Base payment” that does not represent reimbursement of any particular amounts. For these borrowers, only Section A of the discussion below applies.

A limited number of borrowers will receive a check that includes the lump sum “Base payment” and additional amounts. For these borrowers, the letter enclosed with the check will include a section called “Breakdown of your payment” that corresponds to Sections A through E of the discussion below, which explain what amounts this payment represents.

SECTION A: “Base payment, which may be reportable as income”
This is a lump sum payment that does not represent reimbursement of any particular amounts. The entire “Base payment” may be subject to taxation as income depending on the borrower’s individual circumstances. For checks in an amount of $600 or greater, the Paying Agent will report such payments as income to the IRS and appropriate state agencies and to borrowers on a Form 1099 MISC. The Paying Agent will mail this form to borrowers in the first quarter of 2014, according to the deadlines for mailing required by the IRS. The Paying Agent will not report a “Base payment” of less than $600 to the IRS or to the borrower, but the amount may still be subject to taxation depending on the borrower’s individual circumstances.

SECTION B: “Return of mortgage interest you paid”
This payment represents a return of mortgage interest previously paid by the borrower. The tax treatment of this amount may depend on the borrower’s individual circumstances. If the borrower previously deducted mortgage interest on the loan that is the subject of the payment, then the payment may be taxable in the amount of the tax benefit the borrower received from a mortgage interest deduction in a prior year. If the return of mortgage interest is in an amount of $600 or greater, the Paying Agent will report such payments to the IRS and appropriate state agencies and to borrowers on a Form 1098. The Paying Agent will mail this form to borrowers in the first quarter of 2014, according to the deadlines for mailing required by the IRS. If the return of mortgage interest is in an amount less than $600, the Paying Agent will not report the amount to the IRS or to the borrower, but the amount may still be subject to taxation depending on the borrower’s individual circumstances.

SECTION C: “Return of equity on your home”
This payment represents a return of the amount of the borrower’s lost equity in their home. The tax treatment of this amount may depend on the borrower’s individual circumstances. The Paying Agent is not reporting this amount to the IRS or state agencies, so the borrower will not receive a tax document related to this portion of the payment, but the amount may still be subject to taxation depending on the borrower’s individual circumstances.

SECTION D: “Interest on other payment components”
This payment represents a payment of interest due to the borrower on the amounts specified in Sections A, B, and C above and/or Section E below. The tax treatment of this amount may depend on the borrower’s individual circumstances. If the interest payment is in an amount of $600 or greater, the Paying Agent will report such payments as interest income to the IRS and appropriate state agencies and to borrowers on a Form 1099 INT. The Paying Agent will mail this form to borrowers in the first quarter of 2014, according to the deadlines for mailing required by the IRS. The Paying Agent will not report an “Interest on other payment components” amount of less than $600 to the IRS or to the borrower, but the amount is still subject to taxation as income.

SECTION E: “Return of fees you paid”
This payment represents a reimbursement of fees paid by the borrower related to their loan. The tax treatment of this amount may depend on the borrower’s individual circumstances and the types of fees the borrower paid. The Paying Agent is not reporting this amount to the IRS or state agencies, so the borrower will not receive a tax document related to this portion of the payment, but the amount may still be subject to taxation depending on the borrower’s individual circumstances.

“Tax Withholding (Subtracted from Payment)”
If a borrower does not 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 amounts. These amounts will be subtracted from the borrower’s payment and noted in the letter enclosed with the check. The Paying Agent will report such amounts to the IRS and to borrowers on a Form 1099 MISC and/or a Form 1099 INT. The Paying Agent will deposit the amounts withheld on the borrower’s behalf with the IRS or the appropriate state agency and mail the Form 1099 MISC and/or a Form 1099 INT to the borrower in the first quarter of 2014.

Now… I challenge you to figure out which category you are in. Bottom line is that the Independent Foreclosure Review check from Rust Consulting is real, and it can be cashed. Just put aside a little bit of it in case someone has to pay taxes on the new-found fortune.

 

 

Comments

  1. Paula LoCelso

    I received my check for $3000.00. I had a great deal of equity in my home, when I finally gave up the fight with Saxon Mortgage. I have sent a letter to Rust Consulting requesting they explain how they came to the dollars they sent.

  2. Ray Westphal

    Just curious, is getting a W-9 for the Rust Consulting a good thing? I am still waiting on my check! Do good things coem to those who wait?

  3. Tonya Marshall

    I am currently in a Chapter 13 bankruptcy, saving my home from unlawful foreclosure from Wells Fargo. My question is if the check, about $300.00 I gather from the other responses, is the property of the US Bankruptcy Court Trustee administering my case?

  4. Annemarie D.

    The payment received from Rust was $2,000, no explanation letter, no tax warnings as stated above. The payment chart published by the media showed my friend was owed $2,000 for wrongful foreclosure and $6,000 under the incomplete modification section. The whole process has been a horrible sham and insulting to everyone.

  5. Jane Doe

    I received $125K. I have been worried about taxes on it since day 1. I put $31K aside and paid off all bills with the rest. I still cant find any concrete info on the taxation of the money. So I presume i will be paying $31K to the IRS come 2014. Im still hoping the IRS doesnt take THAT much but im sure it will be that and probably more. But im thankful for what I received.

    • John Citizen

      Hey Jane, have you recieved a 1099 yet? We also received 125k but have not gotten any 1099 thus far. I am anxious to know what the taxes are going to be on this too! I am just waiting on this so i can complete my taxes and be done.

  6. Michele

    I had to send a change of payee address form. it will come to me as executor of my fathers tartrate. filled out w9, mailed about ten days ago. anyone had to get a reissue check? we went through two forbearance plans, them were asked to send 2000. with loan mod app, they sent my money back same month Jan2009. My father passed in 2007, so we went through this for 2 years, had payment and unrest raised when they sent 2nd forbearance plan.. would love to know when it will arrive and how much..

  7. KATHERINE

    I FILED BANKRUPT AND FORECLOSE ON MY HOME. HOWEVER, I ONLY RECEIVED 600.00. THIS WAS NOT THE AMOUNT ON THE PAYMENT PAY OUT. NEED TO KNOW WHAT CAN I DO. I CASHED THE CHECK. WHO, WHAT, AND HOW CAN I GET HELP?

  8. AKB

    Well, just try to do a legal name change with these people! They have selective incompetence and if you try to send anything by Registered Mail or Overnight Signature Required they sign “Paying Agent” so you can’t prove that they received it. I have mailed the W-9 a total of 6 times after mailing the Payee Change Form (change of name as I married) twice since March 2013 and guess what?! Got a new W-9 today with my old name on it! After speaking with two different supervisors and eight different customer service reps on 10 different calls since April 2013! Last call was 2 weeks ago and supervisor told me they have my complete Payee Change Form with Documentation and the W-9 that I sent in the same registered mail envelope and that I needed to call the Comptroller of Currency to find out why the name change was not verified yet (I married in 2005 and have been filing my taxes, obtained a new social security card and passport under the new name!!!)!!! So I called the Comptroller of Currency and my bank, Sun Trust actually falls under the Federal Reserve Board’s jurisdiction…filed a complaint today…but don’t hold out much hope as the consumer help rep there told me “the banks did not get bailed out by taxpayer money, it was TARP money” where does he think the TARP money came from?! The Government’s private Ebay account?! Feels sucky to be treated like a cockroach when I am a Veteran and (was) a proud citizen of the United States of America…I’ll never see a check…someone else is too busy collecting interest off the funds or they are already spent and they can’t make them up…

  9. sally martin

    I received a check April 2013 and its already January 2014 and have gotten NOTHING! I had to send the check back for reissue and I have not got not one letter or a check. What the hell are these people doing?

    • Melissa Zavala

      Call the number on the 1099, but I believe a reissue of your check (originally issued last year) is probably in the mail (so also check your mailbox too).

    • Melissa Zavala

      They’ve reissued checks that were lost in the mail, so it’s possibly that your check is in the mail. But, call Rust Consulting and they can tell you!

  10. Robert Calman

    I filed bankruptcy in 2010 when my house was foreclosed on. I received my independent foreclosure review ck in April 2013, I received a 1099-Mic for the $6000. Do I need to file this on my 2013 tax return or am I exempt because of the bankruptcy?

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