Will You Owe Income Tax on a Mortgage Settlement Payment?
Written by: Kristy Welsh
Last Updated: August 15, 2017
If you are one of the millions of borrowers affected by illegal mortgage loan servicing from January 1, 2009 to December 31, 2010, you deserve compensation for your loss and suffering. To that end, eligible borrowers will receive a cash settlement. Unfortunately, the size of the payments pale in comparison to the scope of the inflicted damage. And it doesn't help matters that these payments are considered income for which borrowers are, indeed, expected to pay income tax.
What is the Independent Foreclosure Review (IFR) Settlement?
The IFR settlement ceases the review process of individual mortgage loan files that was instigated upon discovery of deficient practices in mortgage loan servicing and foreclosure processing. Settling and ceasing the review process is intended as a means of providing financial compensation more quickly to eligible borrowers.
Who is Eligible For An IFR Settlement Payment?
Those eligible for an IFR settlement payment include 4.2 million borrowers whose primary residences were in foreclosure between January 1, 2009, and December 31, 2010.
What Size Payment Can You Expect to Receive in An IFR Settlement?
The amount of each eligible borrower's settlement payment will vary, but may be as high as $2,000, the size of which cannot be subject to borrower dispute.
Will You Be Notified If There Are Taxes Owed on an IFR Settlement?
If you receive a settlement payment of $600 or more, your loan servicer is required to file a form with the IRS, a copy of which you should receive in the first quarter of 2014. Though loan servicers are not required to file any such form for payments of less than $600, you are still required to pay taxes on the payment.
Which Loan Companies Are Participating in the IFR Payment Agreement?
According to the Office of the Comptroller of the Currency, loan servicers participating in the IFR payment agreement include:
- America's Servicing Company
- Aurora Loan Services
- BAC Home Loans Servicing
- Bank of America
- GMAC Mortgage
- MetLife Bank
- National City Mortgage
- PNC Mortgage
- Saxon Mortgage
- Sovereign Bank
- U.S. Bank
- Wachovia Mortgage
- Washington Mutual (WaMu)
- Wells Fargo Bank, N.A.
- Wilshire Credit Corporation
If You Receive an IFR Settlement Payment, Will Your Mortgage Loan File Still Receive a Third-Party Review?
No. The IFR settlement stops the review process for participating servicers. Therefore, there will be no determination of wrongdoing on individual loans.
Does That Mean You Cannot Take Any Other Legal Action Against Your Loan Company?
No. The IFR settlement in no way prevents you from taking other legal action against your loan servicer.
Will The Foreclosure Process Cease?
No. However, you may continue to pursue foreclosure alternatives with your servicer. If you are already pursuing other options, such as a loan modification, receiving IFR settlement money will in no way affect that process. In fact, in addition to the IFR settlement cash payments, participating loan servicers are required to provide $5.7 billion in foreclosure prevention, which may include loan modifications, short sale and forgiveness of the remaining balance of the loan after the short sale or foreclosure is completed. That said, there is no guarantee your loan will be one that qualifies for relief.
Will Your Credit Improve If You Receive an IFR Settlement Payment?
No. However, you can and should dispute any and all negative listings on your credit report.
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