Take care with tax informaton reported on Form 1098-Mortgage interest statement

[chicagoed195]

I received my 1098 from BOA last week and after some detective work was able to determine how they arrived at the amount reported on the 1098. In my case, they were crediting all of my payments, including those from the trustee, as if they were applied to the earliest payments in arrears. Since my interest rate decreased significantly in 2011, this resulted in more interest expense reported on the 1098 than I paid directly, but overall less interest expense than I paid directly to BOA and to BOA from the Chapter 13 Trustee.

I can deal with that on my tax return, but if I had just accepted the BOA number, I would have lost out on a $3,000 or so deduction.

[tobee43]

i think they are 1098's and not 1099's to report the interest on the mortgage. GREAT work, those banks will try anything and everything and you deserve every single deduction you can get! 3k is substantial!

[HHM]

I received my 1098 from BOA last week and after some detective work was able to determine how they arrived at the amount reported on the 1098. In my case, they were crediting all of my payments, including those from the trustee, as if they were applied to the earliest payments in arrears. Since my interest rate decreased significantly in 2011, this resulted in more interest expense reported on the 1098 than I paid directly, but overall less interest expense than I paid directly to BOA and to BOA from the Chapter 13 Trustee.

I can deal with that on my tax return, but if I had just accepted the BOA number, I would have lost out on a $3,000 or so deduction.

You have just identified one of the major problems that exist in the chapter 13 world.

The payment tracking system used by most mortgage servicers is still a MS-DOS based program that was designed in the early 80's. It has never been upgraded because of the cost to do so.

It is a very simplistic system, it literally lays out the payment schedule like an excel spreadsheet. So, if the debtor hasn't paid in 12 months and then files chapter 13, the payments get applied to the last open, unpaid payment (the payment due 12 months ago). If your last payment was Feb, 1 2011, and you file BK Feb 2, 2012 and make your Feb 1, 2012 mortgage payment, that payment will be applied to the Feb 1, 2011 payment, not the 2012 payment. Why is that a problem?

That means you perpetually stay in default and accumulate late fees while in chapter 13. Now, sometimes this is not a problem if the lender has a good BK department that goes in and manually makes adjustments. But it is going to happen, and has happened, that the debtor complies with all terms of the chapter 13, receive their discharge, but the computer thinks they are still in default and the debtor must go through the nightmare of the lender bureaucracy to fix it. (and this doesn't even begin to address the issue of post filing fees added to the chapter 13 account that must be paid).

Looks like the 1098 issue is another head to this hydra that has grown.

[IamOld]

Yeah, I got mine just now from HSBC - I know this is the first year with the lower interest and 2 payments in arrears into the CH 13 but it still seems like one payment too low...

By the way - I'm sorry I've been away...family illness...long term...

[boomer2298]

Same issue on mine, I just filed 13, 2 weeks ago and recieved my primary mortgage 1098. Was way off, called them and magicaly it was $3,000 higher in interest the next day. All I had to say is the lawyers and the trustee said it was wrong.

[HHM]

Same issue on mine, I just filed 13, 2 weeks ago and recieved my primary mortgage 1098. Was way off, called them and magicaly it was $3,000 higher in interest the next day. All I had to say is the lawyers and the trustee said it was wrong.

Out of curiosity, how did you know the 1098 was wrong. If the bank refused to fix it, what evidence did you have that showed it should have been $3000 higher.

[boomer2298]

Basic mathematics and amortization. They posted payments and the principle and interest didn’t balance. That is because they had it in a "special account" (their excuse) ...just basically told them that I had filed 13 and these number don’t agree with the lawyers or bk trustee (made that up) and 1 hour later got a revised number with no explanation. Hard copy mailed the next day. So I actually have two 1098’s with two different numbers.