Where to report the 1099-c in the 1040 for 2020
The coronavirus mortgage forbearance has helped millions of American homeowners facing hardship due to pandemic-related loss of income stay in their homes. The federal government just expanded the forbearance on delinquency, allowing homeowners to temporarily suspend mortgage payments for up to 15 months, up from the initial 12 months. But for some homeowners, this help may not be enough. They simply need to get out of their mortgage.
If you feel the need to run away from your mortgage because you can't pay, you're not alone. As of November 2020, 3,9% of mortgages were seriously delinquent, meaning they were at least 90 days past due, according to real estate data company CoreLogic. That delinquency rate was three times higher than the same month in 2019, but was down sharply from the pandemic high of 4,2% in April 2020.
While job loss is the number one reason homeowners seek a mortgage escape route, it's not the only one. Divorce, medical bills, retirement, work-related relocation, or too much credit card or other debt can also be factors homeowners may want out of.
If I get a 1099-c, do I still owe the debt?
If you economically cancel your mortgage with the bank but never inform the Property Registry, the mortgage will continue to be registered against the property. If you decide to sell your property, the buyer will discover that there is a mortgage against the property and may refuse the sale. Even if you tell the buyer that your mortgage is off, you probably won't buy a property with a mortgage against you.
The Land Registry will issue a Nota Simple which is proof of ownership. In addition, it also notifies about the charges (that is, mortgages) and the executions and embargoes (that is, the delinquency of the mortgage, the debts of the Tax on the Income of Physical Persons (IBI)) that the property maintains.
First: You have to contact the bank branch and formally request the cancellation of the mortgage in the Land Registry. It is best to do this in writing addressed to the bank manager.
It is important to highlight the fact that you can be penalized by the bank for the cancellation. When the mortgage deed is signed, it is usual to agree on some expenses and charges related to the cancellation of the mortgage. Therefore, it is important to ask the bank for the cost of the expenses related to the cancellation before proceeding. In addition, you will also have to pay the cancellation deeds at the Spanish Notary and the cost of registration in the Land Registry.
Cancellation of mortgage requirements
After years and years of paying installments, the time has finally come, you are going to pay the last installment of your mortgage. But surely you are wondering, what do I do now, what should I do once finished?
The truth is that you no longer have any debt with your financial institution, but that does not mean that you have finished with your mortgage because it is still registered in the registry and this can cause some problems, so you have two options:
The registry will cancel it by itself, after 20 years (that's nothing); that is, before that time, for any financial procedure you want to carry out, the information will still be there, you will still have a mortgage.
In this case, the financial entity can be entrusted with this procedure, which will not be exempt from administrative costs for the associated procedures; or we can do it ourselves, saving part (but not all) of the cost:
2. Go to a notary to request a public deed of cancellation of the mortgage. This must be signed by the representative of the entity that granted the mortgage, who will be notified by the notary (€200-300).
Requirements for the cancellation of the mortgage in the registry of titles
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from paying off debt on their primary residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with foreclosure, is eligible for relief.
The amount of debt forgiven will be subject to tax if the discharge is for services rendered to the lender or for any other reason not directly related to the decrease in the value of the home or the taxpayer's financial situation.
If you borrow money from a commercial lender and the commercial lender later cancels or forgives the debt, you may need to include the canceled amount in income for tax purposes, depending on the circumstances. When you borrowed the money, you were not required to include the loan amount as income because you were required to pay it back to the lender.
When that loan is later forgiven or canceled, the amount of the loan that you did not repay is usually reported as income. You no longer have an obligation to repay the lender. Generally, the lender is required to report the amount of debt canceled to you and the IRS on Form 1099-C, Cancellation of Debt.
