Debt Liability and Taxes You May Owe after the Foreclosure
Foreclosure is the process where the a lender gets permission to auction off the borrower’s home for not paying their mortgage. Some people give up and move out quickly due to fear of being evicted while others choose to stay and fight. Both kinds of people usually want to put the foreclosure as far behind them as possible. As soon as the bank auctions off the home you both go your separate ways, right? Not always.
If the property sells for less than what you still owed, the leftover balance is called the deficiency. The foreclosing party can either file a law suit to get a deficiency judgment placed against you or they can write the deficiency off as forgiven debt. The IRS labels forgiven debt as taxable income and you may be required to pay it. Here you can learn how this may affect you.
Section 3a: What Happens When Your Home Auctions For Less Than You Owe – Article Coming later 2015
If the lender manages to foreclose on your home when the property value has dropped, they may get less money for the home than what you still owe them.