Independent Foreclosure Review.  

TAX INFORMATION

On February 28, 2013, the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board released amendments to their enforcement actions against 13 mortgage servicers for deficient practices in mortgage loan servicing and foreclosure processing.1 The amendments require the servicers to provide cash payments to borrowers whose homes were in any stage of the foreclosure process in 2009 or 2010 and whose mortgages were serviced by one of the 13 servicers or their affiliates.2 Regulators have published the payment amounts on their websites.3 In addition, in July 2013, the Federal Reserve Board also released an amendment to its enforcement action against GMAC Mortgage for deficient practices in mortgage loan servicing and foreclosure processing.

All payments received in connection with the IFR Payment Agreement may be subject to taxation depending on the borrower’s individual circumstances. This webpage provides general information regarding potential U.S. federal income tax consequences of these payments if you are a citizen or resident of the United States.4

The Independent Foreclosure Review Payment Qualified Settlement Fund (QSF) is required to comply with IRS information reporting requirements with respect to any payments made. The information the Paying Agent must report to the IRS varies depending on such things as the nature of the payment, the residence status of the recipient and whether the Paying Agent is required by law to automatically withhold an amount of the payment. As a result, borrowers may receive a letter from the Paying Agent requesting additional tax-related information to process their payment. Borrowers may also receive one of the tax documents described below.

This webpage is intended solely for informational purposes. It does not suggest a particular tax treatment or address possible state, local, or foreign tax or any other possible tax considerations based on a borrower’s individual circumstances.

Please note that the Paying Agent cannot provide tax guidance to borrowers in connection with cash payments. The information below is general in nature and should not be viewed by borrowers receiving a payment as tax advice. For more information, consult a qualified professional tax advisor.

In most cases, borrowers will receive a check that represents only a lump sum “Base payment” that does not represent reimbursement of any particular amounts. For these borrowers, only Section A of the discussion below applies.

A limited number of borrowers will receive a check that includes the lump sum “Base payment” and additional amounts. For these borrowers, the letter enclosed with the check will include a section called “Breakdown of your payment” that corresponds to Sections A through E of the discussion below, which explain what amounts this payment represents.

SECTION A: “Base payment, which may be reportable as income”
This is a lump sum payment that does not represent reimbursement of any particular amounts. The entire “Base payment” may be subject to taxation as income depending on the borrower’s individual circumstances. For checks in an amount of $600 or greater, the Paying Agent will report such payments as income to the IRS and appropriate state agencies and to borrowers on a Form 1099 MISC. The Paying Agent will mail this form to borrowers in the first quarter of 2014, according to the deadlines for mailing required by the IRS. The Paying Agent will not report a “Base payment” of less than $600 to the IRS or to the borrower, but the amount may still be subject to taxation depending on the borrower’s individual circumstances.

SECTION B: “Return of mortgage interest you paid”
This payment represents a return of mortgage interest previously paid by the borrower. The tax treatment of this amount may depend on the borrower’s individual circumstances. If the borrower previously deducted mortgage interest on the loan that is the subject of the payment, then the payment may be taxable in the amount of the tax benefit the borrower received from a mortgage interest deduction in a prior year. If the return of mortgage interest is in an amount of $600 or greater, the Paying Agent will report such payments to the IRS and appropriate state agencies and to borrowers on a Form 1098. The Paying Agent will mail this form to borrowers in the first quarter of 2014, according to the deadlines for mailing required by the IRS. If the return of mortgage interest is in an amount less than $600, the Paying Agent will not report the amount to the IRS or to the borrower, but the amount may still be subject to taxation depending on the borrower’s individual circumstances.

SECTION C: “Return of equity on your home”
This payment represents a return of the amount of the borrower’s lost equity in their home. The tax treatment of this amount may depend on the borrower’s individual circumstances. The Paying Agent is not reporting this amount to the IRS or state agencies, so the borrower will not receive a tax document related to this portion of the payment, but the amount may still be subject to taxation depending on the borrower’s individual circumstances.

SECTION D: “Interest on other payment components”
This payment represents a payment of interest due to the borrower on the amounts specified in Sections A, B, and C above and/or Section E below. The tax treatment of this amount may depend on the borrower’s individual circumstances. If the interest payment is in an amount of $600 or greater, the Paying Agent will report such payments as interest income to the IRS and appropriate state agencies and to borrowers on a Form 1099 INT. The Paying Agent will mail this form to borrowers in the first quarter of 2014, according to the deadlines for mailing required by the IRS. The Paying Agent will not report an “Interest on other payment components” amount of less than $600 to the IRS or to the borrower, but the amount is still subject to taxation as income.

SECTION E: “Return of fees you paid”
This payment represents a reimbursement of fees paid by the borrower related to their loan. The tax treatment of this amount may depend on the borrower’s individual circumstances and the types of fees the borrower paid. The Paying Agent is not reporting this amount to the IRS or state agencies, so the borrower will not receive a tax document related to this portion of the payment, but the amount may still be subject to taxation depending on the borrower’s individual circumstances.

“Tax Withholding (Subtracted from Payment)”
If a borrower does not return tax information on the Form W-9 as requested by the Paying Agent, then the Paying Agent is required by law to automatically withhold certain amounts. These amounts will be subtracted from the borrower’s payment and noted in the letter enclosed with the check. The Paying Agent will report such amounts to the IRS and to borrowers on a Form 1099 MISC and/or a Form 1099 INT. The Paying Agent will deposit the amounts withheld on the borrower’s behalf with the IRS or the appropriate state agency and mail the Form 1099 MISC and/or a Form 1099 INT to the borrower in the first quarter of 2014.

This webpage is intended solely for informational purposes. It does not suggest a particular tax treatment or address possible state, local, or foreign tax or any other possible tax considerations based on a borrower’s individual circumstances. For additional information you can also go to www.irs.gov.

The information above is general in nature and should not be viewed by borrowers receiving payments as tax advice. For more information, borrowers should consult a qualified professional tax advisor.


1Amendments to Orders issued by the OCC can be found at http://www.occ.gov/news-issuances/news-releases/2013/nr-ia-2013-35.html. Amendments to Orders issued by the Federal Reserve can be found at http://www.federalreserve.gov/newsevents/press/enforcement/20130228a.htm and http://www.federalreserve.gov/newsevents/press/enforcement/20130726a.htm.
2 https://independentforeclosurereview.com/Settled.aspx
3www.occ.gov/independentforeclosurereview and www.federalreserve.gov/consumerinfo/independent-foreclosure-review-payment-agreement.htm
4A discussion of resident and nonresident alien status can be found at http://www.irs.gov/taxtopics/tc851.html.