My bank sent me the wrong tax form — and now it’s ignoring me

Question: Last year I settled my mortgage debt with Fifth Third Bank here in Ohio. After a short sale of the house, I had a deficiency balance of more than $50,000, but through a collection agency, I settled for a $10,000 lump sum payment.

Here’s my problem: Because the debt was settled last year, I should have been issued a 1099 for the mortgage debt forgiven in 2011 to file with that year’s taxes. But the bank is telling me that they will issue it to me for 2012, and that I will have to file it with my 2012 taxes.

This is a major concern to me because the Mortgage Forgiveness Debt Relief Act expires at the end of 2011. This act protects me from having to pay taxes on forgiven mortgage debt. But if I file the 1099 next with my 2012 taxes, I may have to pay taxes on this debt.

What should I do? I’ve been speaking with a manager at Fifth Third bank, and she’s been virtually ignoring me. She admits that its a mistake on their part, but that it’s nothing she can do about it. Can you help? — Dante Lee, Columbus, Ohio

Answer: Your bank should have sent you the right forms the first time, and when you pointed out the error, it should have fixed it immediately — not shrugged it off by saying, “There’s nothing we can do about it.”

I mean, seriously. Fifth Third is behaving as if it’s … well, a bank.

Let’s go over a few of your particulars. A short sale of a home is a popular alternative to a foreclosure. In a short sale, your lender — in this case Fifth Third — is accepting less than the total amount due on your mortgage, because of declining real estate prices. The buyer is getting a good price on a home. And both you and the bank get to avoid a painful foreclosure.

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There’s one catch, which you mentioned. You could still owe the unpaid difference on your mortgage, plus interest and penalties, to the lender. That’s called a deficiency. Your bank sent a collection agency after you for the remaining $50,000, and you settled with it for $10,000.

Actually, the law you cited, the Mortgage Debt Relief Act of 2007, which allows taxpayers to exclude from their income the amount of debt that is forgiven or canceled by their lenders, doesn’t expire until Dec. 31 of this year. Here’s more information about how it could affect your taxes.

But if you sold your home in 2011, you’ll want your paperwork to reflect the correct date. (I’m not a tax attorney or a CPA, but I’ve been audited by the IRS, and when it comes to my taxes, I prefer to have everything just so.)

The point is, while Fifth Third may have done you a favor by allowing to to short-sell your home, it wasn’t giving you good customer service when it sent you the wrong form and refused to correct it. The collection agency thing, that’s debatable.

When your calls to your Fifth Third contacts went unanswered, you could have tried reaching the bank through its website. Failing that, you could have appealed to one of its executives. (Email addresses at Fifth Third are always An executive e-mail carpetbomb would have been your final option.

Turns out none of that was necessary. I contacted the bank on your behalf and it faxed over your 2011 tax form.

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Christopher Elliott

Christopher Elliott is an author, journalist and consumer advocate. You can read more about him on his personal website or check out his adventures on his family adventure travel site. Contact him at Read more of Christopher's articles here.

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