After the Pain of Foreclosure, a Big Tax Bill

Michael Stravato for The New York Times


Two years ago, William Stout lost his home in Allentown, Pa., to foreclosure when he could no longer make the payments on his $106,000 mortgage. Wells Fargo offered the two-bedroom house for sale on the courthouse steps. No bidders came forward. So Wells Fargo bought it for $1, county records show.

Agnes Mouser, a 65-year-old widow in Texas, received a $10,000 tax bill after foreclosure on her loan to pay off credit-card debt.
Despite the setback, Mr. Stout was relieved that his debt was wiped clean and he could make a new start. He married and moved in with his wife, Denise.

But on July 9, they received a bill from the Internal Revenue Service for $34,603 in back taxes. The letter explained that the debt canceled by Wells Fargo upon foreclosure was subject to income taxes, as well as penalties and late fees. The couple had a month to challenge the charges.

For those who struggle to pay their bills, who watch their housing payments rise out of reach with their adjustable-rate mortgages, who lose a job or who fall victim to illness, losing one’s home can feel like hitting bottom. But one more financial indignity may await as the fallout from the great housing boom ripples across the United States.

((((entire story @ link))))

http://www.nytimes.com/2007/08/20/business/20taxes.html?hp

it's not income if he doesn't have the house.... credit card debt is different.

I agree with you that if they took the house in exchange for the debt, he received nothing taxable.

They didn't forgive the debt; they took the house.


Edit:

It was Wells Fargo that filed the 1099:

From the NYT:

After a reporter inquired about the Stout matter, Wells Fargo Home Mortgage said last week that it had reviewed the Stouts’ tax documents and was filing a corrected 1099 tax form to show that no debt had been canceled, because the fair market value of the home was actually more than Mr. Stout had owed.

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Either way, I don't see that they cancelled the debt. They took the house in exchange for the debt.

It didn't work the first three times. Now, it does. Thanks.

everybody not belonging to the Inner Circle owes aleph-infinite dollars to them and be done with it.

Just live in an apartment. If you can't read the fine print in buying a house, and see what's coming, you should choose the safer option.

don't these people have as much right to own a home as you and I. Also, don't they have the right to expect the truth from the lender and don't they have the right to expect the lender to explain the details on the loan to them. Are you saying that someone who is not as intelligent or sophisticated enough to understand all of the complex loans, they don't have a right to own a home.