Tax ramifications of deed in lieu of foreclosure

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jollycampr

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Post Posted: Sun May 20, 2007 8:20 pm    Post subject: Tax ramifications of deed in lieu of foreclosure
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Hi,

What is the tax ramification (by the IRS the state o CA) for a deed in leiu of foreclosure? Thanks

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Post Posted: Sun May 20, 2007 9:33 pm    Post subject: RE:
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Welcome Jolly,

Once a deed in lieu foreclosure is accepted, the lender takes over the borrower's property and sells it off to get back the unpaid debt. But if the home sells at a price lower than the unpaid debt, then the deficit is the debt forgiven by the lender. This implies that the borrower need not pay for it and legally the lender cannot claim it. This unpaid debt becomes the basis of the tax that the borrower has to pay on account of the forgiven debt.

Just refer to our section on Deed-in-lieu to know more about the tax ramifications.
brack

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Post Posted: Mon May 21, 2007 11:52 am    Post subject:
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IF loan balance is more than property's sale value & lender forgives the difference amount then this forgiven debt becomes taxable income for you (also called cancellation of debt income).

Lender then reports the forgiven debt to IRS and provides the borrower 1099-C form
Ryan

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Post Posted: Tue May 22, 2007 4:03 am    Post subject:
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That's right brack. If the taxes on the cancelled debt are not paid on time, the Internal Revenue service (IRS) may place a federal tax lien on your property.
jc

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Post Posted: Tue Jan 22, 2008 9:03 pm    Post subject: property of deceased person
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What happens in the case of a deceased person's estate when the property is given up in a Deed in Lieu of foreclosure and there are no funds left in the estate.
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Post Posted: Wed Jan 23, 2008 12:25 am    Post subject:
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The estate of a person includes real property as well as other assets. When you say, there are no funds in the estate, do you mean there are no assets? your question isn't clear, please clarify.
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Post Posted: Wed Jan 23, 2008 12:40 am    Post subject: RE: tax impact for deed-in-lieu if owner is deceased
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Hi Jc,

If a deceased person's estate is given away through a deed-in-lieu, the estate taxes to be paid by the heirs will depend upon the value of the estate minus the home value. The estate value will include assets such as insurance policies, etc.

However, as per the Mortgage Tax Relief Act, one need not pay tax on forgiven debt. Please check out a previous discussion on Tax break for debt forgiveness .

Good luck

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Cindy Russell

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Post Posted: Mon Aug 25, 2008 9:53 am    Post subject: Funds left over on Estate foreclosure
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What does this mean and is it necessary to obtain legal representation?
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Post Posted: Tue Aug 26, 2008 5:01 am    Post subject:
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Hi Russell.

Welcome to the forum. The homeowner who have faced the foreclosure, can claim the funds left after the foreclosure and paying off the lenders, taxes and all other fees. The legal representation of an attorney is always appreciable and he can help you to get the surplus money after the foreclosure. Feel free to ask if you have any further questions.

Best of luck,
Larry
Natalie GA LAwyer

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Post Posted: Tue Sep 23, 2008 6:53 am    Post subject: No longer considered taxable debt in some circumstances.
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The 1099 income reported to the IRS for a mortgage workout, such as a deed in lieu of foreclosure or a straight foreclosure is now, under certain circumstances for principal residence mortgages, not taxable. Read IRS Form 982 and the mortgage forgiveness debt relief act of 2007 on the Library of Congress website.

PS: >>...IAAL.
tova936

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Post Posted: Mon Mar 02, 2009 4:18 pm    Post subject: Foreclosure with second mortgage involved
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Help. I have moved out of a $444K house. I have a second with a private lending co. What is in store for me? I have savings of about $333K. Can they take everything I have? I'm retired and 66 years old.
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Post Posted: Tue Mar 03, 2009 12:21 am    Post subject:
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Hi tova,

As you have walked away from the property, the first lender will have the right to foreclose the property. If the foreclosure sale does not satisfy his loan, he will have the right to sue you for the deficient amount. He can also place a lien on your other property or garnish your savings account.

As far as your second loan is concerned, the second lender may charge off the loan to a collection agency who will collect the dues from you.
tova936

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Post Posted: Tue Mar 03, 2009 8:49 am    Post subject: help
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inotice that you live in Alaska. Are the lawa the same in california?
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Post Posted: Tue Mar 03, 2009 11:29 pm    Post subject:
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Welcome back tova,

Laws vary from state to state. I guess, you are from California. As far as I know, in California, the lenders cannot sue the borrowers for the deficient amount resulting from the sale of the property.

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Angel22

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Post Posted: Mon Jun 29, 2009 1:50 am    Post subject: Foreclosure In California
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Need some help and advice! We are in jeopardy of a foreclosure!

We have a mortgage and a line of credit. We live in California and know that the first is a non-recourse loan. However, we heard that the line of credit could be a recourse loan. My question is what are the tax ramifications on the line of credit? Can the bank come after us?!!! Please help!
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