My spouse had some major medical issues, and was unable to work, we explained this in a hardship letter to Mortgage Co. and tried to work with them, but they foreclosed on our 2nd home in September 2008. In January 2009 they sent us a 1099-A for the difference between what was owed and the Fair Market Value. We had to claim the difference on our 2008 taxes when filed. Now we have a collection agency calling us and trying to collect the difference between what was owed and the fair market value. Is this legal and how should we handle the collection agency. Thanks for any help.

A 1099A is an informational form. It reports the difference between the balance of the loan and the Fair Market Value. It alos serves to notice the IRS of the sale.

But, unlike a 1099C, it does not cancel the debt, so if a balance was owwed, it is legal to dun you for it.

Hello 10:

If you agreed to a short sale, then the difference in the sales price and what you owed WOULD be considered income to you, and you'd owe taxes on that amount. However, some law passed last year ended that practice. I can find out more about that, if you wish..

However, it has nothing to do with your situation, in my view... The house got foreclosed upon. You didn't gain income from it. In fact, you suffered a loss. Therefore, no taxes were owed no matter that you received a 1099, and no matter what the deal is on the law that I spoke of.

Yes, you owe the difference between what the bank sold it for and what you owed - hence your loss. I'd file an amended return and settle with the bank.

excon