Deed in lieu of foreclosure

[Margaret CPA in OH]

Client couldn't sell condo for about 3 years after divorce, moved out. She settled in 2012 with Deed in Lieu of Foreclosure but has not received any 1099-C or other forms. I haven't found where she is either free and clear or may yet have COD hanging over her. At least she didn't go into bankruptcy or had a foreclosure but what next?

Thanks - first, only so far and I hope last client with this issue.

[Seanr7]

My understanding of a deed in lieu is you give the bank the property, no expensive foreclosure and they take it back even. I could be wrong

[Margaret CPA in OH]

Yes, that is what happened. They did take back the property and did not go through foreclosure so her credit is still good. My question is whether she may expect a COD if the property value is less than the mortgage. From what I can gather that is still a possiblity and is up to the bank. Just wondering if others have handled this as I know several on the board have had full blown foreclosures and accompanying baggage.

[Pacun]

When the bank repossessed the condo, they were some papers signed. You need to see those documents or the client should have a form listing the amount owed to the bank and the FMV of the condo. You have to report that sale on sch D.

You wil have to deal with form 1099-C when your client brings it to you, which could be at any time within the next 3 years or never since the bank might never forgive the debt.

[Margaret CPA in OH]

Thanks so much, Pacun. I figured there must be something in the works and more to do but not sure what. I will contact the client and have her provide the documents. I sort of knew about the iffiness of COD and that it was a waiting game.

Thanks again!

[Margaret CPA in OH]

Client has now provided the paperwork. It states that the consideration, $1, "for said deed was and is for the full cancellation of all debts, obligations, costs, and charges accrued by a certain mortgage heretofore existing on said real estate."

At the end is Limited Warranty Deed stating that the bank then 'do bargain, sell and convey to Federal Home Loan Mortgage Corp'...for $1 the property.

What does all this mean? Pacun, the only amount shown is $1, no mortgage balance or FMV of property Should there be another document? If so, does it have a title?

Thanks again!