Freddie Mac Single-Family Seller/Servicer Guide 8601.3 — Regulatory reporting and Internal Revenue Service (IRS) compliance

The brown font text used throughout this chapter denotes the special requirements for Servicing Senior Subordinate Mortgages. Text in black or green font denotes general Servicing requirements that also apply elsewhere in the Guide. This section contains requirements related to: ■ Internal Revenue Service (IRS) Form 1099-A, Acquisition or Abandonment of Secured Property ■ IRS Form 1099-C, Cancellation of Debt ■ IRS Form 1099-MISC, Miscellaneous Income

(a) IRS Form 1099-A This subsection has been adapted from Section 8106.2(b) to reflect special Servicing requirements for Senior Subordinate Mortgages. The Servicer must provide IRS Form 1099-A to the IRS and the Borrower as required under Section 6050J of the Internal Revenue Code. This reporting must be done whenever a Senior Subordinate Trust or a third party acquires an interest in a property in full or partial satisfaction of the Senior Subordinate Trust’s secured debt or when Freddie Mac or the Servicer knows or has reason to know that a property has been abandoned. For the purposes of filing these reports, the following definitions apply: ■ The Senior Subordinate Trust acquires an interest in Mortgaged Premises either: ❑ On the date of the foreclosure sale or the date the Borrower’s right of redemption, if any, expires, whichever occurs later, and the Senior Subordinate Trust or the Servicer on the Senior Subordinate Trust’s behalf is the winning bidder for the Mortgaged Premises, or ❑ At the time a deed-in-lieu of foreclosure is recorded ■ A third party acquires an interest at the time of the foreclosure sale ■ Abandonment has occurred when Freddie Mac or the Servicer has reason to know from all the facts and circumstances concerning the status of the Mortgaged Premises that the Borrower intended to and has permanently discarded the property from use. If a Servicer determines that an abandonment has occurred and expects to commence foreclosure proceedings within three months, the reporting obligation generally arises at the end of the three-month period. The following events trigger the reporting requirement: ■ Acquisition by the Senior Subordinate Trust (the Senior Subordinate Trust acquires the Mortgaged Premises at a foreclosure sale or by deed-in-lieu of foreclosure) ■ Third-party sale (a third-party acquires the Mortgaged Premises at a foreclosure sale) ■ HUD, RHS or VA acquisition (the Mortgaged Premises were acquired by HUD, RHS or the VA) ■ Abandonment (the Mortgaged Premises have been abandoned, three months have passed and foreclosure proceedings have not begun) A completed IRS Form 1099-A must be filed electronically with the IRS on or before March 31 of the year following the calendar year in which the reportable event occurred. The Servicer must also furnish the Borrower with an information statement on or before January 31 of that year. The requirement for furnishing such statement to the Borrower can be satisfied by sending a completed IRS Form 1099-A to the Borrower’s last known address. The form must name the Senior Subordinate Trust that owns the Mortgage and identify it as the owner of the Mortgage, name Freddie Mac trustee to that Senior Subordinate Trust, list Freddie Mac’s address and include a statement that the information is being reported to the IRS. On the form, the “account number” should include the nine-digit Freddie Mac loan number, followed by one space and the six-digit Servicer number. Note: See Section 8601.3(b) in the event that both IRS Form 1099-A and IRS Form 1099-C may be filed as the result of a cancelation of debt in connection with a foreclosure or similar action in the same year for the same Borrower. Instructions for completing IRS Form 1099-A are set forth in Form 1065A, Report of IRS Form 1099-A and Form 1099-C Filing for a Senior Subordinate Trust. Servicers must comply with the IRS’s and the various States’ requirements, as amended from time to time, for filing IRS Form 1099-A. Servicers should consult with either their tax advisors or the IRS concerning questions on such requirements. Note: The Servicer must file all IRS Forms 1099-A with the IRS electronically. (i) Electronic reporting Servicers must file their reports with the IRS no later than March 31 of the year following the calendar year in which the reportable event occurred. Even though a Servicer reports to the IRS electronically, the Servicer must provide a copy of IRS Form 1099-A to the Borrower (copy B) and to those States that require it (copy C). Copy B must be furnished to the Borrower on or before January 31 of the year following the reportable event. IRS requirements for filing electronically are set forth in IRS Publication 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498 and W2G. A Servicer may obtain this publication by downloading it from the IRS website at www.irs.gov or by calling the IRS at 1-800-TAX-FORM (1-800-829-3676). When filing electronically, the Servicer must: ■ Insert appropriate header information on the electronic report it files with the IRS in accordance with the following record description: Appropriate header information Field name Data description “A” Record Payer’s TIN [Insert Senior Subordinate Trust’s TIN as provided in the written notice from Freddie Mac] First payer name line [Insert name of Senior Subordinate Trust as provided in the written notice from Freddie Mac] Payer shipping address c/o Freddie Mac, Trustee for [insert name of Senior Subordinate Trust] Payer shipping address 8200 Jones Branch Drive Payer city, State and ZIP CodeTM McLean, VA 22102-3100 “B” Record Payer’s account number The nine-digit Freddie Mac loan number and the sixdigit Seller/Servicer number, separating these two numbers by one space ■ Notify Freddie Mac that the Servicer reported to the IRS electronically: ❑ When the report is sent to the IRS, the Servicer must submit Form 1065A to Freddie Mac (see Directory 3) ❑ A Servicer should not send Freddie Mac copies of the report that it filed with the IRS (ii) Correcting or voiding previously submitted IRS Forms 1099-A To correct or void a previously submitted IRS Form 1099-A, the Servicer must refer to IRS requirements to determine how to report either for electronic corrections or voids. To avoid or minimize penalties that may be imposed by the IRS, the Servicer must report corrections or voids to the IRS when an error is discovered. When corrections or voids are submitted to the IRS, a copy of Form 1065A must be submitted to Freddie Mac (see Directory 3). Form 1065A should indicate the number of corrected or voided IRS Forms 1099-A submitted to the IRS. (iii) Filing accuracy and documentation Servicers are responsible for completing IRS Form 1099-A and providing the information to the IRS and to the Borrower in a timely and accurate manner. The Servicer must maintain copies of all statements and reports that Freddie Mac requires the Servicer to provide directly to the Borrowers and the IRS in compliance with Section 6050J of the Internal Revenue Code. The Servicer must make such copies available for examination by Freddie Mac upon request until Freddie Mac agrees, in writing, that such records may be destroyed. If the IRS penalizes Freddie Mac or any Senior Subordinate Trust or assesses any fee for failure to produce such information or because a Servicer failed to file a return or statement or filed an untimely, incorrect or incomplete return or statement, the Servicer will be required to reimburse Freddie Mac for all costs incurred by Freddie Mac or any Senior Subordinate Trust as a result of such penalty or assessment and an amount representing Freddie Mac’s or any Senior Subordinate Trust’s total tax liability resulting from such reimbursement. Such reimbursement will not be required if the Servicer can show that it met the filing requirements.

(b) IRS Form 1099-C This subsection has been adapted from Section 8106.2(c) to reflect special Servicing requirements for Senior Subordinate Mortgages. The Servicer must report cancelations of Borrowers’ Mortgage debt on IRS Form 1099-C, as required under Section 6050P of the Internal Revenue Code for all cancelations of mortgage debt of $600 or more occurring on or after January 1, 2005, with respect to any Senior Subordinate Mortgage. IRS Form 1099-C must be filed regardless of whether the Borrower must report the cancelation of debt as income. Form 1065A includes instructions for completing IRS Form 1099-C. (i) Coordination with IRS Form 1099-A If, in the same calendar year, the Servicer cancels a debt in connection with a foreclosure or abandonment of the Mortgaged Premises, it is not necessary to file both IRS Form 1099-A (see Section 8601.3(a)) and IRS Form 1099-C for the same Borrower. The Servicer will meet the filing requirement for IRS Form 1099-A by completing boxes 4, 5 and 7 on IRS Form 1099-C. However, the Servicer may complete both IRS Forms 1099A and 1099-C separately; in that case, do not complete boxes 4, 5 and 7 on IRS Form 1099-C. (See Form 1065A for filing instructions for IRS Forms 1099-A and 1099-C.) (ii) Requesting taxpayer identification numbers (TINs) A Servicer must make a reasonable effort to obtain the correct name and TIN of the Borrower whose debt was canceled. If the Servicer does not obtain the TIN before the debt is canceled, it must request the Borrower’s TIN. Such request must clearly notify the Borrower that the IRS requires the Borrower to furnish the TIN and that failure to furnish such TIN subjects the Borrower to a $50 penalty imposed by the IRS. Use IRS Form W9, Request for Taxpayer Identification Number and Certification, to request the TIN. However, a Borrower is not required to certify the TIN under penalties of perjury. (iii) Exceptions The Servicer is not required to report the following on IRS Form 1099-C: ■ Certain bankruptcies. Debt canceled in bankruptcy is not reported unless the debt was incurred for business or investment purposes. Senior Subordinate Mortgages may be incurred either for personal purposes or for business or investment purposes. Thus, Servicers should only file IRS Form 1099-C for discharges of debt in bankruptcy if they are aware that the Borrower is holding the property for investment and not as a Primary Residence or second home, such as in the case of an Investment Property Mortgage, determined at origination. In that case, report debt canceled for the later of: ❑ The year in which the amount of canceled debt first can be determined, or ❑ The year in which the debt is canceled in bankruptcy ■ Interest. Servicers do not need to include interest as part of the canceled debt in box 2. However, if interest is reported as part of the canceled debt in box 2, show the interest separately in box 3. ■ Nonprincipal amounts. Nonprincipal amounts include penalties, fines, fees and administrative costs. These do not need to be reported. ■ Release of a Borrower. IRS Form 1099-C does not need to be filed if one of the Borrowers on a Senior Subordinate Mortgage is released as long as the remaining Borrowers remain liable for the full amount of the unpaid Mortgage. ■ Guarantor or surety. IRS Form 1099-C does not need to be filed for a guarantor or surety. A guarantor is not a debtor for purposes of IRS Form 1099-C, even if demand for payment is made to the guarantor. ■ Multiple Borrowers. For Senior Subordinate Mortgages originated after 1994 that involve Borrowers who are jointly and severally liable for the Mortgage, report the entire amount of the canceled debt on each Borrower’s IRS Form 1099-C. Multiple Borrowers are jointly and severally liable for a debt if there is no clear and convincing evidence to the contrary. If it can be shown that joint and several liability does not exist, an IRS Form 1099-C is required for each Borrower for whom the Servicer canceled a debt of $600 or more. For Senior Subordinate Mortgages originated before 1995, the Servicer must file IRS Form 1099-C only for the primary (or first-named) Borrower. If the Servicer knows or has reason to know that the multiple Borrowers were husband and wife who were living at the same address when the debt was incurred, and it has no information that these circumstances have changed, the Servicer may file only one IRS Form 1099-C. See the instructions to Form 1065A for the application of these rules to entity borrowers (e.g., estates or trusts). (iv) Definitions For purposes of these reports, the following definitions apply: ■ A debt may include all amounts owed, including stated principal, stated interest, fees, penalties, administrative costs and fines. However, only stated principal is required to be reported. If accrued interest is included in the amount of the stated debt (in box 2), then it must be reported in box 3. ■ A debt is canceled on the date an identifiable event occurs. An identifiable event is: ❑ A discharge in bankruptcy under Title 11 of the U.S. Code (but see exceptions in Section 8601.3(b)(iii), above) ❑ A cancelation or extinguishment making the debt unenforceable in a receivership, foreclosure or similar proceeding ❑ A cancelation or extinguishment when the statute of limitations for collecting the debt expires or when the statutory period for filing a claim or beginning a deficiency judgment proceeding expires. Expiration of the statute of limitations is an identifiable event only when the Borrower’s affirmative statute of limitations defense is upheld in a final judgment or decision of a court and the appeal period has expired ❑ A cancelation or extinguishment when deficiency rights were not preserved during the foreclosure process ❑ A cancelation or extinguishment when Freddie Mac (or its vendor per Section 9601.1(a)) makes the determination not to pursue a deficiency action postforeclosure and notifies the Servicer of such determination ❑ A cancelation or extinguishment when a creditor elects foreclosure remedies that by law end or bar the creditor’s right to collect the debt. This event applies if collection is barred by local law after a “power of sale” in the Mortgage or deed of trust is exercised. ❑ A cancelation or extinguishment due to a probate or similar proceeding ❑ A discharge of indebtedness under an agreement with the debtor to cancel the debt at less than full consideration (e.g., a short sale). Freddie Mac will advise the Servicer if such an agreement is reached with a Borrower. ❑ A discharge of indebtedness because of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. A creditor’s defined policy can be in writing or an established business practice. A practice to stop collection activity and abandon a debt when a particular nonpayment period expires is a defined policy. Facts and circumstances indicating that a debt was not canceled include the existence of a lien relating to the debt (up to the value of the security) or the sale or packaging for sale of the debt by the creditor. In the event of a foreclosure sale where deficiency rights were preserved, the Servicer must not initially file IRS Form 1099-C. Freddie Mac will determine whether to pursue collection of the deficiency of that Mortgage. If Freddie Mac makes a determination not to pursue collection of the deficiency, Freddie Mac will notify the Servicer in the report described below, and the Servicer must then file IRS Form 1099-C. Servicers must review the 1099-C Loan Detail report, accessible via the “Default Reporting” tile of the Servicer’s Servicer Performance Profile (SPP) (see Exhibit 88, Servicing Tools), by the end of January annually and ensure that IRS Form 1099-C is filed with the IRS as required in Section 8601.3(b)(v) and is provided to the Borrower as required in Section 8601.3(b)(vi) for all Senior Subordinate Mortgages in which the debt has been discharged in the prior year. This report will list all Freddie Mac-Owned or Guaranteed Mortgages whereby Freddie Mac has determined not to pursue collection of the deficiency on behalf of the Senior Subordinate Trust in the prior year. To help facilitate this annual review, from February 1 to December 31 each year, Servicers can monitor the 1099-C Loan Detail report in the SPP, which also provides a tentative aggregate list of Mortgages for which Freddie Mac has decided to not pursue collection of the deficiency on behalf of the Senior Subordinate Trust for the current year. Servicers may use this current year’s list to prepare for the required annual review and any eventual IRS Form 1099-C filings; however, as the status of the Mortgage and/or the cancelation of debt may subsequently change, any Servicer that chooses to use this current year’s list in such a manner must, as part of the required annual review, reconcile the final report against any IRS Form 1099-C filings already prepared. (v) Reporting IRS Form 1099-C to IRS The Servicer must file IRS Forms 1099-C on the Senior Subordinate Trust’s behalf. The Servicer must file all IRS Forms 1099-C with the IRS electronically. IRS Publication 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498 and W-2G, sets forth the IRS requirements for filing electronic reports and corrections. The Servicer can obtain this publication by downloading it from the IRS website at http://www.irs.gov/, or by calling 1-800-TAX-FORM (1-800-829-3676). When filing electronically through the IRS Filing Information Returns Electronically (FIRE) System, the Servicer must insert appropriate header information on the report it files with the IRS in accordance with the following record descriptions: IRS FIRE System header information Field name Data description “A” Record Payer’s TIN [Insert Senior Subordinate Trust’s TIN as provided in the written notice from Freddie Mac] First payer name line [Insert name of Senior Subordinate Trust as provided in the written notice from Freddie Mac] Payer shipping address c/o Freddie Mac, Trustee for [insert name of Senior Subordinate Trust] Payer shipping address 8200 Jones Branch Drive Payer city, State and ZIP CodeTM McLean, VA 22102-3100 “B” Record Payer’s account number The nine-digit Freddie Mac loan number and the six-digit Seller/Servicer number, separating these two numbers by one space Each Servicer must file its reports with the IRS not later than March 31 of the year following the calendar year in which the cancelation of debt occurs. (vi) Reporting the IRS Form 1099-C to the Borrower Even though a Servicer reports to the IRS electronically, the Servicer is still responsible for providing a paper copy of IRS Form 1099-C to the Borrower (copy B) by January 31 of the year following the calendar year in which the cancelation of debt occurred. The Servicer can satisfy the requirement for furnishing such statement to the Borrower by sending completed IRS Form 1099-C to the Borrower’s last known address. The form must identify the Senior Subordinate Trust that owns the Senior Subordinate Mortgage, name Freddie Mac as Trustee to the Senior Subordinate Trust, list Freddie Mac’s address and include a statement that the information is being reported to the IRS. The Servicer is also required to file IRS Form 1099-C with any State that requires this filing in accordance with the State’s filing deadlines. (vii) Notification to Freddie Mac of electronic reporting The Servicer must notify Freddie Mac that the Servicer reported IRS Form 1099-C to the IRS. When the electronic report is sent to the IRS, the Servicer must submit Form 1065A to the attention of (see Directory 3). (viii) Correcting or voiding previously submitted IRS Form 1099-C To correct or void a previously submitted IRS Form 1099-C, the Servicer must refer to IRS requirements to determine how to report either electronic corrections or voids. To avoid or minimize penalties that may be imposed by the IRS, the Servicer must promptly report corrections or voids to the IRS when an error is discovered. When the Servicer submits corrections or voids to the IRS, the Servicer must also submit a copy of Form 1065A to Freddie Mac (see Directory 3). The Servicer must indicate on Form 1065A the number of corrected or voided IRS Forms 1099-C submitted to the IRS. (ix) Filing accuracy and documentation Servicers are responsible for completing IRS Form 1099-C and for providing the information to the IRS and to the Borrower in a timely and accurate manner. The Servicer must: ■ Maintain copies of all statements and reports that Freddie Mac requires the Servicer to provide directly to the Borrowers and the IRS in compliance with Section 6050P of the Internal Revenue Code ■ Make such copies available for examination by Freddie Mac upon request until Freddie Mac agrees, in writing, that such records may be destroyed (which will be a minimum of four years) If the IRS penalizes Freddie Mac or the Senior Subordinate Trust or assesses any fees for failure to produce such information, or because the Servicer failed to file a return or statement or filed an untimely, incorrect or incomplete return or statement, the Servicer will be required to reimburse Freddie Mac for all costs incurred by Freddie Mac or any Senior Subordinate Trust as a result of such penalty or assessment and for the amount representing Freddie Mac’s or any Senior Subordinate Trust’s total tax liability resulting from such reimbursement. Freddie Mac will not require such reimbursement if the Servicer can show that it met the filing requirements.